<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 May 31, 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 June 30, 1997
------------ ----------------------------
Common Stock 1,350,000
<PAGE>
FUTUREBIOTICS, INC.
FORM 10-Q
QUARTERLY REPORT
For the Six Months Ended May 31, 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
May 31, 1997 November 30, 1996
------------ -----------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 737,795 $ 484,285
Investment in marketable securities,
at fair value 551,444 1,598,596
Accounts receivable (no allowance for
doubtful accounts) 995,948 1,449,650
Inventories Note 4 5,069,015 3,261,595
Due from parent 778,536 470,356
Prepaid income taxes 70,467 416,685
Prepaid expenses and other current assets 565,427 452,608
Deferred income tax asset Note 8 107,000 76,152
------------ ------------
Total current assets 8,875,632 8,209,927
------------ ------------
INVESTMENT IN MARKETABLE SECURITIES 484,686 529,512
PROPERTY, PLANT AND EQUIPMENT, net
of accumulated depreciation and amortization
of $152,439 and $117,083 285,604 313,665
INTANGIBLE ASSETS, net Note 5 1,372,273 2,073,805
OTHER ASSETS 668,140 637,072
------------ ------------
$ 11,686,335 $ 11,763,981
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 114,161 $ 85,078
------------ ------------
Total current liabilities 114,161 85,078
------------ ------------
LONG-TERM DEBT Note 6 3,000,000 3,000,000
DEFERRED INCOME TAX LIABILITY Note 8 92,000 134,000
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 (1,679,214) (1,823,340)
Retained earnings 763,154 972,009
------------ ------------
8,480,174 8,544,903
------------ ------------
$ 11,686,335 $ 11,763,981
============ ============
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<PAGE>
FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
-------------------------- --------------------------
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 6,028,061 $ 6,347,847 $ 3,250,301 $ 3,558,594
COSTS AND EXPENSES:
Cost of sales 2,609,990 2,791,008 1,401,339 1,526,852
Selling, general and administrative 3,718,652 3,322,568 1,946,808 2,142,126
Relocation expense - 135,055 - -
----------- ----------- ----------- -----------
6,328,642 6,248,631 3,348,147 3,668,978
----------- ----------- ----------- -----------
OPERATING (LOSS) INCOME (300,581) 99,216 (97,846) (110,384)
----------- ----------- ----------- -----------
OTHER:
Interest income (83,300) (52,178) (28,243) (18,098)
Interest expense 121,574 54,907 60,468 34,118
----------- ----------- ----------- -----------
38,274 2,729 32,225 16,020
----------- ----------- ----------- -----------
(LOSS)/EARNINGS BEFORE
PROVISION FOR INCOME TAXES (338,855) 96,487 (130,071) (126,404)
(BENEFIT)/PROVISION FOR
INCOME TAXES (130,000) 44,000 (30,000) (58,000)
----------- ----------- ----------- -----------
NET (LOSS)/EARNINGS $ (208,855) $ 52,487 $ (100,071) $ (68,404)
=========== =========== =========== ===========
(LOSS)/EARNINGS PER SHARE $ (.15) $ .04 $ (.07) $ (.05)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 1,350,000 1,350,000 1,350,000 1 ,350,000
----------- ----------- ----------- -----------
</TABLE>
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<PAGE>
FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
--------------------------
May 31, May 31,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/earnings $ (208,855) $ 52,487
Adjustments to reconcile net (loss) earnings
to net cash (used in)/provided by operating
activities:
Depreciation and amortization 883,051 803,610
Deferred income tax (benefit) provision (72,848) 294,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 453,702 (331,633)
Inventories (1,807,420) (1,851,342)
Due to/from parent (308,180) 2,417,381
Prepaid income taxes 346,218 -
Prepaid expenses and other current assets (112,819) (549,369)
Other assets (31,068) (118,125)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 29,083 33,484
Income taxes payable - (256,957)
----------- -----------
Total adjustments (620,281) 441,049
----------- -----------
Net cash (used in)/provided by
operating activities (829,136) 493,536
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investments 1,091,978 1,686,260
Purchase of property, plant and equipment (7,295) (146,925)
Acquisition of intangible assets (2,037) (1,113,010)
----------- -----------
Net cash provided by investing activities 1 ,082,646 426,325
----------- -----------
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 253,510 1,419,861
Cash and cash equivalents at beginning of period 484,285 379,406
----------- -----------
Cash and cash equivalents at end of period $ 737,795 $ 1,799,267
=========== ===========
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<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 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 May 31, 1997 and the results of operations and
statements of cash flows for the six months ended May 31, 1997 and May 31,1996.
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 six months
ended May 31, 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 May 31, 1997 have
been estimated using the gross profit method.
-4-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 1997
(Continued)
5. Intangible Assets:
Intangible assets consist of the following:
Six Months Ended Year Ended
May 31, 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 2,789,268 2,085,699
---------- ----------
$1,372,273 $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 May 31, 1997 was 8 1/2%.
-5-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 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 six months ended May 31, 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:
May 31, 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)
---------- ----------- ---------- -----------
Inventories $ 49,140 $ - $ 41,825 $ -
Property, plant and
equipment - (28,100) - (24,667)
Tax carryforwards 57,860 - 54,000 -
Unearned compensation - (232,400) - (275,340)
Other - - (19,673) 8,890
Intangibles - 168,500 - 157,117
--------- --------- --------- ---------
$ 107,000 $ (92,000) $ 76,152 $(134,000)
========= ========= ========= =========
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<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the six and three month periods ended May 31, 1997
approximated $6,028,000 and $3,250,000 respectively, as compared to $6,348,000
and $3,559,000 in the corresponding periods.
Gross profit for the six and three month periods ended May 31, 1997
amounted to approximately $3,418,000 (57% of sales) and $1,849,000 (57% of
sales), respectively as compared to $3,557,000 (56% of sales) and $2,032,000
(57% of sales). The Company has maintained its sales and gross profit levels for
the six and three month periods ended May 31, 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 $3,719,000 and
$1,947,000 for the six and three month periods ended May 31, 1997, respectively.
As a percentage of sales, these amounts represent 62% and 60% respectively, as
compared to 52% and 60% in the corresponding periods. 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 $8,761,000 at May 31,
1997.
The Company's statement of cash flows reflects cash used in operating
activities of approximately $829,000, which reflects a net loss of approximately
($209,000), increases in operating assets, such as inventories ($1,807,000),
prepaid expenses and other current assets ($113,000), other assets of ($31,000)
and due from parent of ($308,000) offset by a decrease in accounts receivable
($454,000), prepaid income taxes of ($346,000) and an adjustment for
depreciation and amortization expense of ($883,000). In addition, the statement
reflects cash provided by investing activities of approximately ($1,083,000),
principally attributable to the sale and maturity of securities ($1,092,000),
net of the purchase of property, plant and equipment of ($7,000) and 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: July 14, 1997 By: /Karine Hollander/
Karine Hollander
Chief Financial Officer
-9-
<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> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 737,795
<SECURITIES> 551,444
<RECEIVABLES> 995,948
<ALLOWANCES> 0
<INVENTORY> 5,069,015
<CURRENT-ASSETS> 8,875,632
<PP&E> 438,043
<DEPRECIATION> (152,439)
<TOTAL-ASSETS> 11,686,335
<CURRENT-LIABILITIES> 114,161
<BONDS> 3,000,000
0
834
<COMMON> 135
<OTHER-SE> 8,479,205
<TOTAL-LIABILITY-AND-EQUITY> 11,686,335
<SALES> 6,028,061
<TOTAL-REVENUES> 6,028,061
<CGS> 2,609,990
<TOTAL-COSTS> 2,609,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,574
<INCOME-PRETAX> (338,855)
<INCOME-TAX> (130,000)
<INCOME-CONTINUING> (208,855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (208,855)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
