<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended August 31, 1996
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: 33-78022
FUTUREBIOTICS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-3205937
- ------------------------------- -------------------------
(State or other jurisdiction of (State or I.R.S. Employer
incorporation of organization) Identification Number)
145 Ricefield Lane
Hauppauge, New York
----------------------------------------
(Address of principal executive offices)
11788
----------
(Zip Code)
(516) 273-2630
---------------------------------------------------
(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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Class Outstanding at October 7, 1996
- ------------ ------------------------------
Common Stock 13,500,000
<PAGE>
FUTUREBIOTICS, INC.
FORM 10-QSB
QUARTERLY REPORT
For the Nine Months Ended August 31, 1996
TABLE OF CONTENTS
Page to Page
------------
Financial Statements:
Balance sheet........................................................ 1
Statements of operations............................................. 2
Statements of cash flows............................................. 3
Notes to financial statements........................................ 4-6
Management's discussion and analysis
of financial condition and result
of operations........................................................ 7-8
Legal proceedings.................................................... 9
Signatures........................................................... 10
<PAGE>
FUTUREBIOTICS, INC.
BALANCE SHEET
(Unaudited)
August 31, 1996
ASSETS
------
CURRENT ASSETS:
Cash $ 1,695,870
Accounts receivable 1,241,495
Inventories 4,181,124
Prepaid expenses and other current
assets 1,204,142
------------
Total current assets 8,322,631
------------
INVESTMENTS IN MARKETABLE SECURITIES 877,762
PROPERTY, PLANT AND EQUIPMENT, net 299,316
INTANGIBLE ASSETS, net 2,642,738
OTHER ASSETS 702,540
------------
$ 12,844,987
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 125,316
Due to parent 1,494,955
------------
Total current liabilities 1,620,271
------------
LONG-TERM DEBT 2,500,000
DEFERRED INCOME TAXES 103,848
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value;
authorized 40,000,000 shares;
13,500,000 issued and outstanding 1,350
Preferred stock, $.0001 par value;
authorized 8,335,000 shares; 8,335,000
issued and outstanding 834
Additional paid-in capital 9,394,049
Unearned compensation (1,895,403)
Retained earnings 1,120,038
------------
8,620,868
------------
$ 12,844,987
============
-1-
<PAGE>
FUTUREBIOTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
August 31, August 31,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 9,449,321 $ 7,866,389 $ 3,101,474 $ 2,556,181
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 4,355,837 3,857,299 1,564,829 1,147,852
Selling, general and
administrative 5,179,630 3,615,052 1,857,062 1,364,510
Relocation expense 135,055 -- -- --
------------ ------------ ------------ ------------
9,670,522 7,472,351 3,421,891 2,512,362
------------ ------------ ------------ ------------
OPERATING (LOSS) / INCOME (221,201) 394,038 (320,417) 43,819
OTHER:
Interest income (84,523) (215,606) (32,345) (88,066)
Interest expense 89,299 24,837 34,392 9,558
------------ ------------ ------------ ------------
4,776 190,769 2,047 (78,508)
------------ ------------ ------------ ------------
(LOSS) EARNINGS BEFORE
PROVISION FOR INCOME TAXES (225,977) 584,807 (322,464) 122,327
(BENEFIT) / PROVISION FOR
INCOME TAXES (84,000) 237,000 (128,000) 46,000
------------ ------------ ------------ ------------
NET (LOSS) / EARNINGS $ (141,977) $ 347,807 $ (194,464) $ 76,327
------------ ------------ ------------ ------------
(LOSS) / EARNINGS PER SHARE $ (.01) $ .03 $ (.01) $ .01
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 13,500,000 13,215,328 13,500,000 13,500,000
------------ ------------ ------------ ------------
</TABLE>
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<PAGE>
FUTUREBIOTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
1996 1995
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (141,977) $ 347,807
----------- -----------
Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,047,161 403,395
Deferred income tax liability (benefit) 207,000 (66,000)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 191,853 (683,279)
Inventories (2,273,194) (258,978)
Prepaid expenses and other current assets (615,559) (714,301)
Other assets (36,935) (304,869)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 36,483 116,756
Income taxes payable (256,957) 24,532
Due to/from parent 2,255,850 (119,326)
----------- -----------
Total adjustments 555,702 (1,602,070)
----------- -----------
Net cash provided by (used in) operating activities 413,725 (1,254,263)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in investments 1,615,061 (3,016,554)
Purchase of property, plant and equipment (167,136) (44,723)
Acquisition of intangible assets (1,795,186) (599,293)
----------- -----------
Net cash used in investing activities (347,261) (3,660,570)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of note payable, bank 1,250,000 500,000
Payments of unearned compensation -- (63,480)
----------- -----------
Net cash provided by financing activities 1,250,000 436,520
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,316,464 (4,478,313)
Cash and cash equivalents at beginning of period 379,406 5,457,047
----------- -----------
Cash and cash equivalents at end of period $ 1,695,870 $ 978,734
=========== ===========
</TABLE>
-3-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1996
1. Basis of Presentation:
The interim financial statements furnished reflect all adjustments
which are, in the opinion of management, necessary to present a fair statement
of the financial position and results of operations for the nine and three
month periods ended August 31, 1996 and August 31, 1995. The financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to financial statements included in the Company's
Form 10-KSB for the fiscal year ended November 30, 1995. The results of
operations for the nine month periods ended August 31, 1996 and 1995 are not
necessarily indicative of the results to be expected for the full year.
2. Concentration of Credit Risk:
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Accounting Standards
No. 105, include trade accounts receivable. Wholesale distributors of
nutritional supplements account for a substantial portion of trade receivables.
The risk associated with this concentration is limited due to the large number
of distributors and their geographic dispersion. Financial instruments also
include U.S. treasury notes and other government backed securities.
3. Investment in Marketable Securities:
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." FASB No. 115 requires that investments in debt and equity
securities be designated as trading, held-to-maturity, or available for sale.
Management considers the Company's marketable securities, consisting
principally of government and government-backed debt securities, to be
available-for-sale. Available-for-sale securities are reported at amounts which
approximate fair value.
4. Inventories:
Inventories, consisting principally of finished goods, at August 31,
1996 have been estimated using the gross profit method.
5. Intangible Assets:
The Company has implemented a marketing program with select retail
stores and distributors in order to obtain premium shelf space. Contracts with
retailers are for a fixed period of not less than one year. Costs associated
with these contracts are being charged to operations ratably over the lives of
the agreements.
-4-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1996
(Continued)
6. Revolving Credit Agreement:
The Company has a secured revolving credit agreement with a bank. All
borrowings bear interest at the bank's prime rate (8.25% at August 31, 1996) or
2% above the Eurodollar rate (at the Company's option) and are collateralized
by the Company's assets.
In September 1996, the Company and its parent entered into a new
revolving credit agreement ("New Agreement") with a bank whereby the Company
may borrow up to $4,000,000. The New Agreement replaces the existing revolving
credit agreement and expires in September 1999. Borrowings under the new
agreement bear interest at the bank's prime rate or 2% above the Eurodollar
rate (at the Company's option), are collateralized by all of the Company's
assets and require, among other things, the maintenance of minimum tangible net
worth and limitations on additional borrowings.
7. Stockholders' Equity:
a. (Loss) Earnings per share
Earnings per share were computed by dividing net (loss) earnings
by the weighted average number of common shares and equivalents outstanding.
b. Reverse stock split:
In May 1996, the Board of Directors approved a one for ten
Reverse Stock Split of the Company's common stock. The Reverse Stock Split is
subject to the approval of the Company's shareholders.
8. Income Taxes:
The tax effects of temporary differences that give rise to the
deferred tax asset at August 31, 1996 are as follows:
Net Deferred
Income Tax Liability
--------------------
Property, plant and equipment $ 19,000
Intangible assets (153,000)
Unearned compensation 301,000
Tax carryforward (63,000)
---------
$ 104,000
=========
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<PAGE>
FUTUREBIOTICS, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1996
(Continued)
9. Commitments:
Pursuant to employment agreements entered into with certain key
employees in December 1995, the Company has granted options to purchase 50,000
shares of the Company's common stock at any time commencing two years from the
date of the agreements, at an exercise price of $1.00 per share.
The Company's aggregate commitment under such agreements which expire
in December 1997 is approximately $280,000.
-6-
<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the nine and three month periods ended August 31, 1996
approximated $9,449,000 and $3,101,000, respectively, representing increases of
20% and 21% over the corresponding periods in 1995. The increase is principally
attributable to continued expansion of advertising and marketing efforts.
Gross profit for the nine and three month periods ended August 31,
1996 amounted to approximately $5,093,000 (54% of sales) and $1,537,000 (50% of
sales) respectively as compared to $4,009,000 (51% of sales) and $1,408,000
(55% of sales) in the corresponding periods in the prior year. The increase in
gross profit in the nine month period ended August 31, 1996 is attributable to
the mix of sales as well as the re-order of products at higher prices under the
preferred retailer program implemented in the prior year. The decrease in gross
profit in the three month period ended August 31, 1996 is principally
attributable to the introduction of new products at competitive prices.
Selling, general and administrative expenses approximated $5,180,000
and $1,857,000 for the nine and three month periods ended August 31, 1996,
respectively. As a percentage of sales, these amounts represent 55% and 60%
respectively, as compared to 46% and 53% in the corresponding periods in the
prior year. The increase in selling, general and administrative expenses is
principally attributable to promotional costs incurred in connection with an
aggressive sales program designed to obtain shelf space at selected retailers
for a contract period of not less than one year. The cost of this promotion is
being charged to operations on a straight line basis which is not necessarily
proportional to sales generated under the program. As of May 31, 1996, the
Company ceased signing on any new customers under this program.
The Company realized approximately $135,000 in expenses related to the
relocation of its sales offices from Vermont to New York.
Liquidity and Capital Resources
The Company had net working capital of approximately $6,702,000 at
August 31, 1996.
The Company's statement of cash flows reflects cash provided by
operating activities of approximately $414,000 which reflects increases in
operating assets and payables such as inventories ($2,273,000) and prepaid
expenses and other current assets ($616,000) offset by an increase in amounts
due to parent ($2,256,000) and an adjustment for amortization expense
($1,047,000). In addition, the statement reflects cash used in investing
activities of approximately ($347,000) principally attributable to the maturity
of government securities ($1,615,000) net of acquisition of fixed assets and
intangibles of approximately ($1,962,000).
-7-
<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The cash flow statement also reflects cash of $1,250,000 provided by
financing activities resulting from borrowings under a secured revolving credit
agreement with a bank.
In September 1996, the Company and its parent entered into a Revolving
Credit Agreement with a bank whereby the Company may borrow up to $4,000,000.
The agreement replaces the existing credit facility and expires in September
1999.
The Company expects to meet its cash requirements from operations,
current cash reserves, and its existing financial arrangements.
-8-
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
Reference is made to Item 3 in the Company's Form 10-KSB for the year
ended November 30, 1995.
-9-
<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.
FUTUREBIOTICS INC.
Dated: October 10, 1996 By: /s/ Michael B. Krasnoff
---------------------------------
Michael B. Krasnoff
Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> AUG-31-1996
<CASH> 1,695,870
<SECURITIES> 0
<RECEIVABLES> 1,241,495
<ALLOWANCES> 0
<INVENTORY> 4,181,124
<CURRENT-ASSETS> 8,322,631
<PP&E> 401,044
<DEPRECIATION> 101,728
<TOTAL-ASSETS> 12,844,987
<CURRENT-LIABILITIES> 1,620,271
<BONDS> 2,500,000
0
834
<COMMON> 1,350
<OTHER-SE> 8,618,684
<TOTAL-LIABILITY-AND-EQUITY> 12,844,987
<SALES> 9,449,321
<TOTAL-REVENUES> 9,449,321
<CGS> 4,355,837
<TOTAL-COSTS> 4,355,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,299
<INCOME-PRETAX> (225,977)
<INCOME-TAX> (84,000)
<INCOME-CONTINUING> (141,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141,977)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
