<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, 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 JULY 1, 1999
- ------------ ----------------------------
COMMON STOCK 1,350,000
<PAGE>
FUTUREBIOTICS, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE SIX MONTHS ENDED MAY 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 - 9
Legal proceedings..............................................10
Signatures.....................................................11
<PAGE>
FUTUREBIOTICS, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MAY 31, 1999 NOVEMBER 30, 1998
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 62 $ 181
ACCOUNTS RECEIVABLE (LESS ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $12) 1,127 1,030
INVENTORIES (NOTE 4) 1,855 2,179
DUE FROM PARENT 3,005 2,533
PROPERTY, PLANT AND EQUIPMENT HELD FOR DISPOSAL (NOTE 5) 164 194
INTANGIBLE ASSETS HELD FOR DISPOSAL (NOTE 6) 372 438
PREPAID INCOME TAXES 6 -
PREPAID EXPENSES AND OTHER CURRENT ASSETS 446 145
DEFERRED INCOME TAX ASSET (NOTE 9) 330 326
--------- ---------
TOTAL CURRENT ASSETS 7,367 7,026
OTHER ASSETS 142 314
--------- ---------
$ 7,509 $ 7,340
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 399 $ 72
--------- ----------
TOTAL CURRENT LIABILITIES $ 399 $ 72
--------- ----------
LONG-TERM DEBT (NOTE 7)
DEFERRED INCOME TAX LIABILITY (NOTE 9) - 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 (1,096) (1,228)
(DEFICIT) (1,190) (1,042)
-------- --------
7,110 7,126
-------- --------
$ 7,509 $ 7,340
======== ========
</TABLE>
-1-
<PAGE>
FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
MAY 31, MAY 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 4,020 $ 5,105 $ 2,272 $ 2,761
COSTS AND EXPENSES:
COST OF SALES 2,353 3,031 1,362 1,655
SELLING, GENERAL AND ADMINISTRATIVE 1,961 2,471 1,024 1,260
---------- ----------- ----------- -----------
4,314 5,502 2,386 2,915
---------- ----------- ----------- -----------
OPERATING LOSS (294) (397) (114) (154)
OTHER:
INTEREST INCOME - (37) - (10)
INTEREST EXPENSE - 99 - 40
OTHER - (5) - 3
---------- ----------- ----------- -----------
- 57 - 33
---------- ----------- ----------- -----------
LOSS BEFORE BENEFIT
FOR INCOME TAXES (294) (454) (114) (187)
INCOME TAX BENEFIT (146) (135) (52) (49)
---------- ----------- ----------- -----------
NET LOSS $ (148) $ (319) $ (62) $ (138)
========== =========== =========== ===========
LOSS PER COMMON SHARE $ (.11) $ (.23) $ (.05) $ (.10)
---------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 1,350,000 1,350,000 1,350,000 1,350,000
---------- ----------- ---------- -----------
</TABLE>
-2-
<PAGE>
FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (148) $ (319)
--------- --------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 228 265
DEFERRED INCOME TAX BENEFIT (146) (135)
LOSS ON SALE OF EQUIPMENT - 5
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
ACCOUNTS RECEIVABLE (97) (153)
INVENTORIES 324 (49)
DUE TO/FROM PARENT (472) 675
PREPAID INCOME TAXES (6) 132
PREPAID EXPENSES AND OTHER CURRENT ASSETS (301) 8
OTHER ASSETS 172 (6)
INCREASE (DECREASE) IN LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 327 (49)
--------- --------
TOTAL ADJUSTMENTS 29 693
--------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (119) 374
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE/MATURITY OF MARKETABLE SECURITIES - 1,088
PROCEEDS FROM SALE OF EQUIPMENT - 15
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT - (3)
--------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES - 1,100
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENT OF DEBT - (1,600)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES - (1,600)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (119) (126)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 181 615
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 62 $ 489
========= ========
</TABLE>
-3-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 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 May 31, 1999 and the results of operations
and statements of cash flows for the six months ended May 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 six months ended May
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 May 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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
---- ----
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Equipment $ 34 $ 34
Office equipment and fixtures 368 368
Leasehold improvements 8 8
--------- ---------
410 410
Less accumulated depreciation and amortization 246 216
--------- ---------
164 194
Less assets held for disposal 164 194
--------- ---------
$ - $ -
========= =========
</TABLE>
-4-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 1999
(CONTINUED)
5. INTANGIBLE ASSETS:
Intangible assets consist of the following:
SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
---- ----
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
Covenants not to compete $ 845 $ 845
Goodwill 300 300
Other 31 34
--------- --------
1,176 1,179
Less accumulated amortization 804 741
--------- --------
372 438
Less assets held for disposal 372 438
--------- --------
$ - $ -
========= ========
6. LONG-TERM DEBT:
The Company and its parent maintain credit facilities with a bank which
provide for borrowings under a revolving credit agreement (the "Revolving
Agreement") and a term loan (the "Term Agreement").
The Revolving Agreement, as amended, which extends through September
2000, provides for aggregate borrowings of up to $10,000,000 with a sublimit of
$4,000,000 for the Company. Borrowings under the Revolving Agreement bear
interest at the bank's prime rate or the Eurodollar rate plus 1.75%, at the
Company's option.
The Term Agreement provides for aggregate borrowings of up to
$8,500,000 for the Company and its parent on a combined basis.
The Company and its parent are jointly and severally liable for the
unpaid balance of the credit facilities. The agreement 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, 1999 was 7.75%.
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.
-5-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 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)
MAY 31, 1999 NOVEMBER 30, 1998
------------ -----------------
(UNAUDITED)
(IN THOUSANDS) (IN THOUSANDS)
Inventories $ 139 $ 144
Property, plant and equipment (36) (35)
Tax carryforwards 608 528
Unearned compensation (119) (142)
Intangibles 203 199
Other (122) -
Valuation allowance (343) (510)
------- -------
$ 330 $ 184
======= =======
9. MAJOR CUSTOMER:
Sales to a major customer approximated 10% of total sales for the six
month period ended May 31, 1999.
10. SUBSEQUENT EVENT:
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.
-6-
<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 six and three month periods ended May 31, 1999
approximated $4,020,000 and $2,272,000 respectively, as compared to $5,105,000
and $2,761,000 in the corresponding periods. Gross profit on these sales
approximated $1,667,000 (41% of sales) and $910,000 (40% of sales) for the six
and three month periods ended May 31, 1999 as compared to $2,074,000 (41% of
sales) and $1,106,000 (40% of sales) in the corresponding period.
Selling, general and administrative expenses approximated $1,961,000
(49% of sales) and $1,024,000 (45% of sales) for the six and three months ended
May 31, 1999 respectively, as compared to $2,471,000 (48% of sales) and
$1,260,000 (46% 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 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 $6,968,000 at May 31, 1999.
The Company's statement of cash flows reflects cash used in operations
of approximately $119,000 which reflects a net loss of approximately ($148,000),
increases in operating assets such as accounts receivable ($97,000), due from
parent ($472,000), prepaid and other current assets ($301,000) and an adjustment
for deferred income tax benefit ($146,000), offset by a decrease in inventories
($324,000), other assets ($172,000), increase in accounts payable and accrued
expenses ($327,000) and an adjustment for depreciation and amortization
($228,000).
The Company and its parent are party to credit facilities with a bank
which provide for borrowings under a revolving credit agreement (the
"Revolving Agreement") and a term loan (the "Term Agreement").
The Revolving Agreement, as amended, which expires in September 2000
provides for aggregate borrowings of up to $10,000,000 with a sublimit of
$4,000,000 for the Company. Borrowings under the Revolving Agreement bear
interest at the bank's prime rate or Eurodollar rate plus 1.75%, at the
Company's option. The term agreement provides for aggregate borrowings of up to
$8,500,000 for the Company and its parent on a combined basis.
-8-
<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company and its parent are jointly and severally liable for the
unpaid balance of the credit facilities. Borrowings are secured by the assets of
the Company and its parent.
The credit facilities contain various covenants pertaining to the
maintenance of certain financial ratio restrictions, limitations on dividends,
and restrictions on borrowings.
The Company expects to meet its cash requirements from operations,
current cash reserves, and existing financial agreements.
-9-
<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.
-10-
<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, 1999 BY: /KARINE HOLLANDER/
--------------------------------
KARINE HOLLANDER
CHIEF FINANCIAL OFFICER
-11-
<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> 6-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> MAY-31-1999
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 1,139
<ALLOWANCES> 12
<INVENTORY> 1,855
<CURRENT-ASSETS> 7,367
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,509
<CURRENT-LIABILITIES> 399
<BONDS> 0
0
1
<COMMON> 0
<OTHER-SE> 7,109
<TOTAL-LIABILITY-AND-EQUITY> 7,509
<SALES> 4,020
<TOTAL-REVENUES> 4,020
<CGS> 2,353
<TOTAL-COSTS> 2,353
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (294)
<INCOME-TAX> (146)
<INCOME-CONTINUING> (148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
