<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED FEBRUARY 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 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 APRIL 2, 1997
COMMON STOCK 1,350,000
<PAGE>
FUTUREBIOTICS, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997
TABLE OF CONTENTS
PAGE TO PAGE
FINANCIAL STATEMENTS:
Condensed balance sheets..........................................1
Condensed statements of operations................................2
Condensed statements of cash flows................................3
Notes to condensed financial statements.........................4-6
Management's discussion and analysis of financial condition
and results of operations.........................................7
Legal proceedings.................................................8
Signatures........................................................9
<PAGE>
FUTUREBIOTICS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, 1997 NOVEMBER 30, 1996
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,580,443 $ 484,285
INVESTMENT IN MARKETABLE SECURITIES,
AT FAIR VALUE 252,519 1,598,596
ACCOUNTS RECEIVABLE (NO ALLOWANCE FOR
DOUBTFUL ACCOUNTS) 1,334,314 1,449,650
INVENTORIES (NOTE 4) 4,128,212 3,261,595
DUE FROM PARENT - 470,356
PREPAID INCOME TAXES 364,065 416,685
PREPAID EXPENSES AND OTHER CURRENT
ASSETS 655,605 452,608
DEFERRED INCOME TAX ASSET (NOTE 8) 106,682 76,152
----------- -----------
TOTAL CURRENT ASSETS 8,421,840 8,209,927
----------- -----------
INVESTMENTS IN MARKETABLE SECURITIES 485,806 529,512
PROPERTY, PLANT AND EQUIPMENT, NET
OF ACCUMULATED DEPRECIATION AND AMORTIZATION
OF $134,578 AND $117,083 296,170 313,665
INTANGIBLE ASSETS, NET (NOTE 5) 1,723,307 2,073,805
OTHER ASSETS 766,958 637,072
----------- -----------
$11,694,081 $11,763,981
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 40,552 $ 85,078
DUE TO PARENT 23,817 -
----------- -----------
TOTAL CURRENT LIABILITIES 64,369 85,078
----------- -----------
LONG-TERM DEBT (NOTE 6) 3,000,000 3,000,000
DEFERRED INCOME TAX LIABILITY (NOTE 8) 121,530 134,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
COMMON STOCK, $.0001 PAR VALUE;
AUTHORIZED 40,000,000 SHARES;
1,350,000 ISSUED AND OUTSTANDING 135 135
PREFERRED STOCK, $.0001 PAR VALUE;
AUTHORIZED 8,335,000 SHARES; 8,335,000
ISSUED AND OUTSTANDING 834 834
ADDITIONAL PAID-IN CAPITAL 9,395,265 9,395,265
UNEARNED COMPENSATION (1,751,277) (1,823,340)
RETAINED EARNINGS 863,225 972,009
----------- -----------
8,508,182 8,544,903
----------- -----------
$11,694,081 $11,763,981
=========== ===========
</TABLE>
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<PAGE>
FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
NET SALES $2,777,760 $2,789,253
---------- ----------
COSTS AND EXPENSES:
COST OF SALES 1,208,651 1,264,156
SELLING, GENERAL AND
ADMINISTRATIVE 1,771,844 1,315,497
---------- ------------
2,980,495 2,579,653
---------- ------------
OPERATING (LOSS) INCOME (202,735) 209,600
---------- ------------
OTHER:
INTEREST INCOME (55,057) (34,079)
INTEREST EXPENSE 61,106 20,788
---------- ------------
6,049 (13,291)
---------- ------------
(LOSS) EARNINGS BEFORE
PROVISION FOR INCOME TAXES (208,784) 222,891
(BENEFIT) PROVISION FOR
INCOME TAXES (100,000) 102,000
---------- ------------
NET (LOSS) EARNINGS $(108,784) $ 120,891
---------- ------------
(LOSS) EARNINGS PER SHARE $ (.08) $ .09
---------- ------------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 1,350,000 1,350,000
---------- ------------
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<PAGE>
FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) EARNINGS $ (108,784) $ 120,891
----------- ----------
ADJUSTMENTS TO RECONCILE NET (LOSS) EARNINGS TO NET
CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 442,093 306,111
DEFERRED INCOME TAX (BENEFIT) PROVISION (43,000) 322,000
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
ACCOUNTS RECEIVABLE 115,336 (593,138)
INVENTORIES (866,617) (54,298)
DUE TO PARENT 470,356 (33,347)
PREPAID INCOME TAXES 52,620 -
PREPAID EXPENSES AND OTHER CURRENT ASSETS (202,997) (555,430)
OTHER ASSETS (129,886) 49,064
INCREASE (DECREASE) IN LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (44,526) 59,685
INCOME TAXES PAYABLE - (256,957)
DUE TO PARENT 23,817 -
----------- ----------
TOTAL ADJUSTMENTS (182,804) (756,310)
----------- ----------
NET CASH USED IN OPERATING ACTIVITIES (291,588) (635,419)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
DECREASE IN INVESTMENTS 1,389,783 1,454,014
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT - (111,873)
ACQUISITION OF INTANGIBLE ASSETS (2,037) (238,487)
----------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,387,746 1,103,654
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PROCEEDS OF NOTE PAYABLE, BANK - 500,000
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 500,000
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,096,158 968,235
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 484,285 379,406
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,580,443 $1,347,641
=========== ==========
</TABLE>
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<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 28, 1997
1. BASIS OF PRESENTATION:
The interim unaudited condensed financial statements furnished
reflect all adjustments which are, in the opinion of management, necessary
to present fairly its financial position as of February 28, 1997 and the
results of operations and statements of cash flows for the three months
ended February 28, 1997 and February 29,1996. The balance sheet as of
November 30, 1996 has been derived from the audited balance sheet as of
that date. This report should be read in conjunction with the Company's
annual report filed on Form 10-KSB for the fiscal year ended November 30,
1996. The results of operations and cash flows for the three months ended
February 28, 1997 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 corporate bonds rated at
least "A-1" or the equivalent thereof by Standard & Poors Corporation.
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 corporate bonds rated at least "A-1" or the
equivalent thereof by Standard & Poors Corporation, 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 February
28, 1997 have been estimated using the gross profit method.
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FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 28, 1997
(CONTINUED)
5. INTANGIBLE ASSETS:
Intangible assets consist of the following:
THREE MONTHS ENDED YEAR ENDED
FEBRUARY 28, NOVEMBER 30,
1997 1996
---- ----
(UNAUDITED)
Distribution rights $2,562,253 $2,562,253
Customer lists 384,212 384,212
Covenants not to compete 845,000 845,000
Goodwill 300,000 300,000
Other 70,076 68,039
---------- -----------
4,161,541 4,159,504
Less accumulated amortization 2,438,234 2,085,699
---------- -----------
$1,723,307 $2,073,805
========== ==========
The Company has a marketing program with select retail stores and
distributors in order to obtain premium shelf space. Costs associated with
these distribution rights are being charged to operations ratably over the
lives of the agreements. The Company ceased signing on any new customers
under this program as of May 31, 1996.
6. REVOLVING CREDIT AGREEMENT:
The Company and its parent, as co-borrowers, maintain a
revolving credit agreement with a bank. The agreement provides for
aggregate borrowings of up to $15,000,000, with a sublimit of $4,000,000
for the Company and $11,000,000 for the parent. Interest is charged monthly
on the outstanding balance at prime. Unpaid interest and principal is due
on September 29, 1999. This loan agreement is secured by all the assets of
the Company and its parent. The Company and its parent are jointly and
severally liable for the unpaid balance of this credit line.
The revolving line of credit agreement, as amended, contains
various covenants pertaining to the maintenance of certain financial ratio
restrictions, limitations on dividends, and restrictions on borrowings.
The prime rate at February 28, 1997 was 8 1/4%.
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<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 28, 1997
(CONTINUED)
7. STOCKHOLDERS' EQUITY:
a. (Loss) Earnings per share
(Loss) earnings per share were computed by dividing net
(loss) earnings by the weighted average number of common shares
outstanding. Outstanding stock options have not been included as their
effect on (loss) earnings per share would have been anti-dilutive.
b. Reverse stock split
On December 30, 1996, the Company's Board of Directors
authorized a one for ten reverse stock split of common stock outstanding.
Per share and weighted average share amounts for the three months ended
February 29, 1996 have been restated to reflect this stock split.
8. INCOME TAXES:
The tax effects of temporary differences that give rise to the net
deferred income tax asset (liability) are comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, 1997 NOVEMBER 30, 1996
----------------- -----------------
(UNAUDITED)
NET NET NET NET
DEFERRED DEFERRED DEFERRED DEFERRED
INCOME TAX INCOME TAX INCOME TAX INCOME TAX
ASSET (LIABILITY) ASSET (LIABILITY)
<S> <C> <C> <C> <C>
Inventories $ 47,547 $ - $41,825 $ -
Property, plant and
equipment - (27,586) - (24,667)
Tax carryforwards 54,000 - 54,000 -
Unearned compensation - (264,410) - (275,340)
Other 5,135 - (19,673) 8,890
Intangibles - 170,466 - 157,117
-------- ---------- -------- ----------
$106,682 $(121,530) $76,152 $(134,000)
======== ========== ======== ==========
</TABLE>
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<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the three month periods ended February 28, 1997 and 1996
approximated $2,778,000 and $2,789,000, respectively.
Gross profit approximated $1,569,000 (56% of net sales) and
$1,525,000 (55% of net sales) for the three months ended February 28, 1997
and February 29, 1996, respectively. The Company has maintained its sales
and gross profit levels for the three month period ended February 1997 as
compared to the corresponding period in 1996 when the Company was operating
with an aggressive marketing program to gain shelf space.
Selling, general and administrative expenses approximated
$1,772,000 and $1,315,000 for the three months ended February 28, 1997 and
February 29, 1996, (64% and 47%, respectively, as a percentage of sales).
The increase is principally attributable to an increase in the amortization
of promotional costs incurred in connection with an aggressive sales
program designed to obtain shelf space at selected retailers. The increase
in amortization is principally attributable to additional contracts with
customers being signed in the first six months of fiscal year end 1996 and
the cost of this promotion being charged to operations on a straight line
basis which is not necessarily proportional to sales generated under the
program. The Company ceased signing on any new customers under this program
as of May 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of approximately $8,357,000 at
February 28, 1997.
The Company's statement of cash flows reflects cash used in
operating activities of approximately $292,000, which reflects increases in
operating assets, such as inventories ($867,000), prepaid expenses and
other current assets ($203,000) and other assets of ($130,000) offset by a
decrease in due to parent ($470,000) and an adjustment for depreciation and
amortization expense of ($442,000). In addition, the statement reflects
cash provided by investing activities of approximately ($1,388,000),
principally attributable to the sale and maturity of securities
($1,390,000), net of acquisition of intangibles of approximately ($2,000).
The Company and its parent maintain a Revolving Credit Agreement
with a bank whereby the Company may borrow up to $4,000,000. The agreement
expires in September 1999. Borrowings under this agreement bear interest at
the prime rate or 2% above the Eurodollar rate (at the Company's option)
and are collateralized by all of the Company's assets. The revolving line
of credit agreement, as amended, contains various covenants pertaining to
the maintenance of certain financial ratio restrictions, limitations on
dividends and restrictions on borrowings. The Company and its parent are
jointly and severally liable for the unpaid balance of this credit line.
The Company expects to meet its cash requirements from operations,
current cash reserves, and its existing financial arrangements.
-7-
<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, 1996.
-8-
<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: APRIL 8, 1997 BY: /KARINE HOLLANDER/
KARINE HOLLANDER
CHIEF FINANCIAL OFFICER
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<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> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 1,580,443
<SECURITIES> 252,519
<RECEIVABLES> 1,334,314
<ALLOWANCES> 0
<INVENTORY> 4,128,212
<CURRENT-ASSETS> 8,421,840
<PP&E> 430,748
<DEPRECIATION> 134,578
<TOTAL-ASSETS> 11,694,081
<CURRENT-LIABILITIES> 64,369
<BONDS> 3,000,000
0
834
<COMMON> 135
<OTHER-SE> 8,507,213
<TOTAL-LIABILITY-AND-EQUITY> 11,694,081
<SALES> 2,777,760
<TOTAL-REVENUES> 2,777,760
<CGS> 1,208,651
<TOTAL-COSTS> 1,208,651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,106
<INCOME-PRETAX> (208,784)
<INCOME-TAX> (100,000)
<INCOME-CONTINUING> (108,784)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108,784)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
