<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 August 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: 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, 1999
Common Stock 1,350,000
<PAGE>
FUTUREBIOTICS, INC.
FORM 10-Q
QUARTERLY REPORT
For the Nine Months Ended August 31, 1999
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 - 8
Legal proceedings.............................................9
Signatures....................................................10
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FUTUREBIOTICS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
August 31, 1999 November 30, 1998
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 37 $ 181
Accounts receivable (less allowance for doubtful
accounts of $12) 994 1,030
Inventories (Note 3) 1,919 2,179
Due from parent 3,217 2,533
Property, plant and equipment held for disposal (Note 4) 149 194
Intangible assets held for disposal (Note 5) 334 438
Prepaid income taxes 9 -
Prepaid expenses and other current assets 231 145
Deferred income tax asset (Note 8) 307 326
-------- --------
Total current assets 7,197 7,026
OTHER ASSETS 130 314
-------- --------
$ 7,327 $ 7,340
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 659 $ 72
-------- --------
Total current liabilities 659 $ 72
-------- ---------
LONG-TERM DEBT (Note 6)
DEFERRED INCOME TAX LIABILITY (Note 8) - 142
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value;
authorized 40,000,000 shares;
1,350,000 issued and outstanding - -
Preferred stock, $.0001 par value;
authorized 8,335,000 shares; 8,335,000
issued and outstanding 1 1
Additional paid-in capital 9,395 9,395
Unearned compensation (1,031) (1,228)
(Deficit) (1,697) (1,042)
-------- --------
6,668 7,126
-------- --------
$ 7,327 $ 7,340
======== ========
</TABLE>
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FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
August 31, August 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 5,484 $ 7,656 $ 1,464 $ 2,550
COSTS AND EXPENSES:
Cost of sales 3,235 4,522 882 1,490
Selling, general and administrative 3,027 3,582 1,066 1,111
--------- ---------- ---------- ---------
6,262 8,104 1,948 2,601
--------- ---------- ---------- ---------
OPERATING LOSS (778) (448) (484) (51)
OTHER:
Interest income - (51) - (14)
Interest expense - 120 - 22
Other - (9) - (4)
--------- ---------- ---------- ---------
- 60 - 4
--------- ---------- ---------- ---------
LOSS BEFORE (BENEFIT)/PROVISION
FOR INCOME TAXES (778) (508) (484) (55)
INCOME TAX (BENEFIT)/PROVISION (123) (162) 23 (28)
--------- ---------- ---------- ---------
NET LOSS $ (655) $ (346) $ (507) $ (27)
========= ========== ========== =========
LOSS PER COMMON SHARE $ (.49) $ (.26) $ (.38) $ (.02)
--------- ---------- ---------- ---------
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)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (655) $ (346)
--------- ---------
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 346 385
Deferred income tax benefit (123) (162)
Loss on sale of equipment - 5
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 36 393
Inventories 260 (510)
Due to/from parent (684) 1,484
Prepaid income taxes (9) 132
Prepaid expenses and other current assets (86) 160
Other assets 184 68
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 587 (63)
--------- ---------
Total adjustments 511 1,892
--------- --------
Net cash (used in) provided by operating activities (144) 1,546
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investments - 1,288
Proceeds from sale of equipment - 15
Purchase of property, plant and equipment - (40)
--------- ---------
Net cash provided by investing activities - 1,263
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt - (3,000)
--------- ---------
Net cash used in financing activities - (3,000)
--------- ---------
Net decrease in cash and cash equivalents (144) (191)
Cash and cash equivalents at beginning of period 181 615
--------- ---------
Cash and cash equivalents at end of period $ 37 $ 424
======== ========-
</TABLE>
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<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1999
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 August 31, 1999 and the results of
operations and statements of cash flows for the nine months ended August 31,
1999 and 1998. The balance sheet as of November 30, 1998 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-K for the fiscal
year ended November 30, 1998. The results of operations and cash flows for the
nine months ended August 31, 1999 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.
3. Inventories:
Inventories, consisting principally of finished goods, at August 31,
1999 have been estimated using the gross profit method.
4. Property, Plant and Equipment:
Property, plant and equipment, at cost, consist of the following:
Nine Months Ended Year Ended
August 31, November 30,
1999 1998
---- ----
(in thousands) (in thousands)
(unaudited)
Equipment $ 34 $ 34
Office equipment and fixtures 368 368
Leasehold improvements 8 8
---------- ----------
410 410
Less accumulated depreciation and amortization 261 216
---------- ----------
149 194
Less assets held for disposal 149 194
---------- ----------
$ - $ -
========== ==========
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FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1999
(Continued)
5. Intangible Assets:
Intangible assets consist of the following:
Nine Months Ended Year Ended
August 31, November 30,
1999 1998
---- ----
(in thousands) (in thousands)
(unaudited)
Covenants not to compete $ 845 $ 845
Goodwill 300 300
Other 25 34
--------- --------
1,170 1,179
Less accumulated amortization 836 741
--------- --------
334 438
Less assets held for disposal 334 438
--------- --------
$ _ $ -
========= ========
6. Long-Term Debt:
On July 22, 1999, the Company and its parent terminated the revolving
credit and term loan facilities with its bank.
7. Stockholders' Equity:
The loss per common share is computed by dividing the net loss by the
average number of common shares and common stock equivalents outstanding during
the period. Common stock equivalents have been excluded from the calculation as
the effect is antidilutive.
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FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 1999
(Continued)
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:
Net Net
Deferred Deferred
Income Tax Income Tax
Asset (Liability) Asset (Liability)
August 31, 1999 November 30, 1998
--------------- -----------------
(unaudited)
(in thousands) (in thousands)
Inventories $ 137 $ 144
Property, plant and equipment (36) (35)
Tax carryforwards 739 528
Unearned compensation (108) (142)
Intangibles 205 199
Valuation allowance (630) (510)
--------- -------
$ 307 $ 184
========= =======
9. Major Customer:
Sales to two major customers each approximated 11% of total sales for
the nine month period ended August 31, 1999.
10. Sale of Assets
On July 1, 1999, Nutraceutical Corporation terminated the agreement to
purchase substantially all of the Company's assets. Management is pursuing the
sale of these assets, and does not anticipate a loss on the sale.
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<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements made
that are not historical facts are forward-looking and, accordingly, involve
risks and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. Although such
forward-looking statements have been based on reasonable assumptions, there is
no assurance that the expected results will be achieved. Some of the factors
that could cause actual results to differ materially include, but are not
limited to: the effects of regulatory decisions; changes in law and other
governmental actions and initiatives; uncertainties relating to global economic
conditions; market acceptance of competing products; the availability and cost
of raw materials, the Company's ability to successfully maintain or increase
market share in its core business while expanding its product base into other
markets; the strength of its distribution channels; and the Company's ability to
manage fixed and variable expense growth relative to revenue growth.
Results of Operations
Net sales for the nine and three month periods ended August 31, 1999
approximated $5,484,000 and $1,464,000 respectively, as compared to $7,656,000
and $2,550,000 in the corresponding periods. The decline in sales is a result of
unfavorable market conditions, weak distribution and discontinued items. Gross
profit on these sales approximated $2,249,000 (41% of sales) and $582,000 (40%
of sales) for the nine and three month periods ended August 31, 1999 as compared
to $3,134,000 (41% of sales) and $1,060,000 (42% of sales) in the corresponding
period.
Selling, general and administrative expenses approximated $3,027,000
(55% of sales) and $1,066,000 (73% of sales) for the nine and three months ended
August 31, 1999 respectively, as compared to $3,582,000 (47% of sales) and
$1,111,000 (44% of sales) for the corresponding periods in 1998. The decrease is
primarily attributable to the consolidation of sales territories and increased
telemarketing efforts with a resulting decrease in sales force salaries and
expenses.
On July 1, 1999, Nutraceutical Corporation terminated the agreement to
purchase substantially all of the Company's assets. Management is pursuing the
sale of these assets, and does not anticipate a loss on the sale.
-7-
<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company recognizes the need to ensure its operations will not be
adversely impacted by the Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is addressing this risk as to the availability and
integrity of financial systems and reliability of operational systems. The
Company has developed a plan to ensure that its systems are compliant with the
requirements to process transactions in the Year 2000. The plan consists of four
phases: assessment, remediation, testing and implementation, and encompasses
internal information technology (IT) systems and non-IT systems, as well as
third party exposures. The Company has completed the assessment of its IT
systems and non-IT systems and has satisfactorily tested and implemented
remedial changes to its existing software. In addition, the Company has
requested from a majority of its principal suppliers and vendors written
statements regarding their plan for meeting Year 2000 requirements. To date, the
Company has not received adequate response to such requests.
Management of the Company believes that it is working on an effective
program to resolve the Year 2000 issue in a timely manner and that the costs of
implementing this program will not materially affect the financial position of
the Company. The Company has not yet completed all necessary phases of the Year
2000 program. In the event that the Company does not complete any additional
phases, the Company could experience business interruptions. In addition,
disruptions in the economy generally resulting from the Year 2000 issues could
also materially adversely affect the Company. The amount of potential liability
and lost revenue cannot be reasonably estimated at this time.
Liquidity and Capital Resources
The Company had net working capital of $6,538,000 at August 31, 1999.
The Company's statement of cash flows reflects cash used in operations
of approximately $144,000 which reflects a net loss of approximately ($
655,000), increases in operating assets such as due from parent ($684,000),
prepaid and other current assets ($86,000) and an adjustment for deferred income
tax benefit ($123,000), offset by (i) a decrease in accounts receivable
($36,000), inventories ($260,000), other assets ($184,000), (ii) an increase in
accounts payable and accrued expenses ($587,000) and (iii) an adjustment for
depreciation and amortization ($346,000).
On July 22, 1999, the Company and its parent terminated the revolving
credit and term loan facilities with its bank.
The Company expects to meet its cash requirements from operations and
current cash reserves.
-8-
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
Reference is made to Item 3 in the Company's Form 10-K for the year
ended November 30, 1998.
-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 12, 1999 By: /Karine Hollander/
--------------------------------------
Karine Hollander
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> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> AUG-31-1999
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 1,006
<ALLOWANCES> 12
<INVENTORY> 1,919
<CURRENT-ASSETS> 7,197
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,327
<CURRENT-LIABILITIES> 659
<BONDS> 0
0
1
<COMMON> 0
<OTHER-SE> 6,667
<TOTAL-LIABILITY-AND-EQUITY> 7,327
<SALES> 5,484
<TOTAL-REVENUES> 5,484
<CGS> 3,235
<TOTAL-COSTS> 3,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (778)
<INCOME-TAX> (123)
<INCOME-CONTINUING> (655)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (655)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
</TABLE>
