<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 March 31, 1999
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 May11, 1999, there were outstanding 2,180,358 shares of Common
Stock, par value $.01 per share, of the registrant.
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
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 March 31, 1999 (Unaudited)
and December 31, 1998 5
Statements of Operations for the Three Months
Ended March 31, 1999 and 1998 (Unaudited) 6
Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 (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
</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 regulations, 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 regulations,
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,
1998. 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, 1998.
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>
March 31, December 31,
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,078,577 $ 2,795,429
Prepaid expenses and other current assets 657,907 512,487
-------------- -------------
Total current assets 1,736,484 3,307,916
Furniture, equipment and leasehold improvements, net 1,484,880 1,675,992
Intangible and other assets, net 1,208,504 1,142,837
-------------- -------------
Total assets $ 4,429,868 $ 6,126,745
-------------- -------------
-------------- -------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 456,337 $ 513,673
Deferred revenue 180,000 180,000
Note payable 98,477 126,613
-------------- -------------
Total current liabilities 734,814 820,286
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, respectively, issued and
outstanding) 34,842,604 33,955,166
Common Stock, $0.01 par value (30,000,000 shares
authorized, 2,180,358 and 2,179,142 shares,
respectively, issued and outstanding) 21,804 21,791
Additional paid-in capital 38,430,096 38,529,097
Accumulated deficit (69,599,450) (67,199,595)
-------------- -------------
Total stockholders' equity 3,695,054 5,306,459
-------------- -------------
Total liabilities and stockholders' equity $ 4,429,868 $ 6,126,745
-------------- -------------
-------------- -------------
</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
March 31,
-----------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
REVENUES:
Sponsored research revenues $ 510,873 $ 168,593
Interest and investment income 21,146 93,713
---------------- ---------------
Total revenues 532,019 262,306
COSTS AND EXPENSES:
Research and development 1,601,376 2,524,194
General and administrative 547,048 546,744
---------------- ---------------
Total costs and expenses 2,148,424 3,070,938
---------------- ---------------
NET LOSS $ (1,616,405) $ (2,808,632)
---------------- ---------------
---------------- ---------------
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (1.15) $ (2.06)
---------------- ---------------
---------------- ---------------
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE 2,179,882 1,750,204
---------------- ---------------
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,616,405) $(2,808,632)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 202,811 352,514
Issuance of common stock for services 5,000 --
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and other current
assets (145,420) 492,060
Increase in intangible and other assets and notes
receivable (74,666) (32,658)
Decrease in accounts payable and accrued
liabilities (57,336) (309,955)
Increase in deferred revenues -- 200,000
------------------- -------------------
Net cash used in operating activities (1,686,016) (2,106,671)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,700) (74,990)
Net sale of investments --- 693,279
------------------- -------------------
Net cash provided by (used in) investing activities (2,700) 618,289
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations -- (2,159)
Payments on notes payable (28,136) (81,597)
Issuance of stock and warrants -- 404,500
------------------- -------------------
Net cash provided by (used in) financing activities (28,136) 320,744
------------------- -------------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,716,852) (1,167,638)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 2,795,429 9,661,310
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,078,577 $ 8,493,672
------------------- -------------------
------------------- -------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Energy BioSystems Corporation (the "Company") 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.
Effective March 30, 1999, EBC implemented a restructuring, including
a substantial employee reduction, in order to reduce expenses and focus its
limited resources on the critical elements leading to commercialization of
its patented BDS process. EBC is retaining certain key technical and
administrative personnel. The Company accrued approximately $125,000 related
to severance costs at March 31, 1999. EBC is currently seeking additional
financing through various alternatives that include: an equity financing,
government funding and alliances with chemical companies and corporate
partners. However, there can be no assurance that EBC will be able to obtain
financing on acceptable terms. In the event EBC is unable to obtain
financing, EBC will consider other alternatives, including: (i) a license,
sale or other disposition of EBC's BDS or other technologies, or certain
rights relating thereto; (ii) a sale or other reorganization of EBC; or (iii)
the combination of EBC with another entity.
EBC's property and equipment and intangible and other assets are unique
to the proprietary technology and processes that EBC has and continues to
develop. Realization of EBC's investments in these assets is dependent upon
the success of future operations or the sale or licensing of intellectual
properties. If EBC is unable to continue as a going concern, the recorded
asset carrying amounts may be greater than the amounts that will be realized
in the event of liquidation.
EBC's BDS process will require substantial additional research,
development and testing in order to determine its commercial viability. EBC
has proven its BDS technology only to a limited extent in laboratory,
bench-scale and pilot plant trials, which is not yet sufficient for full
commercialization. If EBC successfully field tests its BDS technology, the
commercialization of the BDS technology will require significant additional
time and expenditures. The commercialization of the technology will depend
on, among other things, EBC's success in achieving improvement of its
biocatalyst and success in developing fermentation processes, as well as
EBC's ability to manufacture or contract for the manufacture of sufficient
biocatalyst for use in commercial BDS units; to apply process engineering to
design bioreactor systems capable of accomplishing the BDS process on a
commercial scale; and to market its BDS systems effectively. The
accomplishment of some or all of these objectives may be delayed or may never
occur. EBC will require additional capital to continue as a going concern and
to continue the development and commercialization of its BDS technology, and
there can be no assurance that such capital will be available or that EBC
will be able to successfully commercialize its BDS technology.
8
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
As previously disclosed in the Company's Form 10-K for the year
ended December 31, 1998, as filed with the Securities and Exchange
Commission, the opinion of Arthur Andersen LLP, the independent public
accountants for the Company, included an explanatory fourth paragraph in
their report on the Company's financial statements as of and for the year
ended December 31, 1998, that described the substantial doubt regarding the
Company's ability to continue as a going concern.
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, 1998.
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 December 1998, the Company declared a one-for-seven reverse stock
split which was effective December 18, 1998. All references to earnings per
share, number of shares and share amounts prior to December 18, 1998 have
been retroactively restated to reflect the reverse stock split.
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 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.
9
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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. The Company
elected to defer payment of the May 1, 1999 dividend in accordance with the
Series B Preferred Stock Agreement.
Shares of Series B Preferred Stock are convertible into shares of
common stock at a conversion price equal to $50.75 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 3,940 shares and 1,674
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.
10
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
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 March 31, 1999, the Company's accumulated deficit was
$69,599,450.
Effective March 30, 1999, the Company implemented a restructuring,
including a substantial employee reduction, in order to reduce expenses and
focus its limited resources on the critical elements leading to
commercialization of its patented BDS process. The Company accrued
approximately $125,000 related to severance costs at March 31, 1999. EBC is
currently seeking additional financing through various alternatives that
include: an equity financing, government funding and alliances with chemical
companies and corporate partners.
RESULTS OF OPERATIONS
The Company had total revenues for the three months ended March 31,
1999 and 1998 of $532,019 and $262,306, respectively. The increase of
$269,713 in total revenues 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 $510,873 during the
first three months of 1999 as compared to $168,593 during the first three
months of 1998. The increase of $342,280 in sponsored research revenues
resulted primarily from the increase in sponsored research revenues from a
Department of Energy ("DOE") grant to $510,873 in the first three months of
1999 compared to $134,639 in the first three months of 1998.
The Company had interest and investment income of $21,146 for the
first three months of 1999 compared to $93,713 for the first three months of
1998. The decrease of $72,567 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 research and development expenses for the three
months ended March 31, 1999 and 1998 of $1,601,376 and $2,524,194,
respectively. The decrease in research and development expenses of $922,818
for the three months ended March 31, 1999 as compared to the corresponding
prior year period resulted primarily from a reduction in research and
development personnel and the one time 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 1998 levels for the remainder of 1999, reflecting a reduction
in the workforce at the end of the first quarter of 1999.
The Company had general and administrative expenses for the three
months ended March 31, 1999 and 1998 of $547,048 and $546,744, respectively.
General and administrative
11
<PAGE>
expenses remained constant for the three months ended March 31, 1999 as
compared to the corresponding period of 1998 reflecting the Company's intent
to maintain general and administrative expenses at prior year levels. The
Company expects a slight decrease from 1998 levels in its general and
administrative expenses during the remainder of 1999, reflecting a reduction
in administrative personnel at the end of the first quarter of 1999 and the
planned subleasing of approximately 20% of its office space at the end of the
second quarter 1999.
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 3,940 and 1,674 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. The
Company elected to defer payment of the May 1, 1999 dividend in accordance
with the Series B Preferred Stock Agreement.
At March 31, 1999, the Company had cash and cash equivalents
totaling $1,078,577 and working capital of $1,001,670.
The Company intends to spend approximately $50,000 during the
remainder of 1999 for the purchase of analytical instrumentation and
renovation of office space in preparation of subleasing approximately 20% of
the Company's current leased space. 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 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, 1998.
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 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
12
<PAGE>
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 28,571 shares of its common stock at an
exercise price of $21.77 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 using deeply desulfurized diesel fuel provided by
Total. The Company and Total have extended the term of their collaboration
agreement and are evaluating the conditions under which the Company's BDS
technology could 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".
In August 1997, the Company was awarded funding by the DOE for a
$2.4 million, three year program dedicated to the development of a BDS
application for gasoline. Through March 31, 1999 the Company had recognized
$1,088,677 in sponsored research revenue from the grant, of which $510,873
was receivable at March 31, 1999.
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 mid 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
13
<PAGE>
not result in accelerated or unexpected expenditures. To satisfy its capital
requirements, the Company is currently seeking additional funding through
various alternatives that include: an equity financing, government funding,
and alliances with chemical companies and corporate partners. 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 June 30, 1999. 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.
14
<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.
15
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ENERGY BIOSYSTEMS CORPORATION
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: May 14, 1999
By: /s/ Paul G. Brown III
---------------------
Paul G. Brown III
Vice President, Finance and Administration and
Chief Financial Officer
Date: May 14, 1999
16
<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 MARCH 31, 1998
Weighted Average Shares Outstanding:
TOTAL # DAYS
SHARES OUTSTANDING
1,750,204 x 90 = 157,518,360
----------- -----------
90 157,518,360
----------- -----------
----------- -----------
157,518,360 / 90 = 1,750,204
---------
---------
Loss Per Share:
Net Loss plus dividend accrual
plus accretion of offering costs $(3,598,495) = $ (2.06)
- --------------------------------- ----------- -------
-------
Weighted Avg. Shares 1,750,204
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED MARCH 31, 1999
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C>
2,179,124 x 19 = 41,403,356
2,179,713 x 30 = 65,391,390
2,180,358 x 41 = 89,394,678
-------------- -----------------
273 196,189,424
-------------- -----------------
-------------- -----------------
196,189,424 / 90 = 2,179,882
-------------
-------------
Loss Per Share:
Net Loss plus dividend accrual
plus accretion of offering costs $ (2,503,843) = $ (1.15)
- --------------------------------- ------------- = -------------
-------------
Weighted Avg. Shares 2,179,882
</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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,078,577
<SECURITIES> 0
<RECEIVABLES> 510,873
<ALLOWANCES> 0
<INVENTORY> 26,569
<CURRENT-ASSETS> 1,736,484
<PP&E> 6,800,516
<DEPRECIATION> 5,315,636
<TOTAL-ASSETS> 4,429,868
<CURRENT-LIABILITIES> 734,814
<BONDS> 0
0
34,842,604
<COMMON> 21,804
<OTHER-SE> 38,430,096
<TOTAL-LIABILITY-AND-EQUITY> 4,429,868
<SALES> 0
<TOTAL-REVENUES> 532,019
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,148,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,616,405)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,616,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,616,405)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
