<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, 2000
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)
(631) 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 6, 2000
--------------------- --------------------------------------
Common Stock 1,350,000
<PAGE>
FUTUREBIOTICS, INC.
FORM 10-Q
QUARTERLY REPORT
For the Nine Months Ended August 31, 2000
-----------------------------------------
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
<PAGE>
FUTUREBIOTICS, INC.
CONDENSED BALANCE SHEETS
------------------------
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
August 31, 2000 November 30, 1999
--------------- -----------------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 72 $ 94
Accounts receivable (less allowance for doubtful
accounts of $12) (Note 8) 1,489 1,138
Inventories (Note 3) 625 1,492
Due from parent 1,110 1,101
Prepaid income taxes and other current assets 199 55
------- -------
Total current assets 3,495 3,880
PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) 160 135
INTANGIBLE ASSETS, NET (Note 5) 208 303
OTHER ASSETS 357 113
------- -------
$ 4,220 $ 4,431
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 14 $ 71
------- -------
Total current liabilities 14 71
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY: (Note 6)
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 (687) (840)
(Deficit) (2,834) (2,727)
Treasury stock at cost; 506,268 shares and
458,083 shares, respectively (1,669) (1,469)
------- -------
4,206 4,360
------- -------
$ 4,220 $ 4,431
======= =======
</TABLE>
-1-
<PAGE>
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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 4,833 $ 5,484 $ 1,584 $ 1,464
COSTS AND EXPENSES:
Cost of sales 3,099 3,235 1,021 882
Selling, general and administrative 2,212 3,027 654 1,066
----------- ----------- ----------- -----------
5,311 6,262 1,675 1,948
----------- ----------- ----------- -----------
OPERATING LOSS (478) (778) (91) (484)
INCOME TAX (BENEFIT)/PROVISION (371) (123) (53) 23
----------- ----------- ----------- -----------
NET LOSS $ (107) $ (655) $ (38) $ (507)
=========== =========== =========== ===========
LOSS PER COMMON SHARE $ (.12) $ (.49) $ (.04) $ (.38)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 871,549 1,350,000 846,401 1,350,000
=========== =========== =========== ===========
</TABLE>
-2-
<PAGE>
FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(107) $(655)
----- -----
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 291 346
Deferred income tax benefit -- (123)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (351) 36
Inventories 867 260
Due to/from parent (9) (684)
Prepaid income taxes and other current assets (144) (95)
Other assets (244) 184
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (57) 587
----- -----
Total adjustments 353 511
----- -----
Net cash provided by (used in) operating activities 246 (144)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (68) --
----- -----
Net cash used in investing activities (68) --
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Stock (200) --
----- -----
Net cash used in financing activities (200) --
----- -----
Net decrease in cash and cash equivalents (22) (144)
Cash and cash equivalents at beginning of period 94 181
----- -----
Cash and cash equivalents at end of period $ 72 $ 37
===== =====
</TABLE>
-3-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 2000
---------------------------------
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, 2000 and the results of
operations and statements of cash flows for the nine months ended August 31,
2000 and 1999. The balance sheet as of November 30, 1999 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, 1999. The results of operations and cash flows for the
nine months ended August 31, 2000 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,
2000 have been estimated using the gross profit method.
4. Property, Plant and Equipment:
------------------------------
Property, plant and equipment, at cost, consist of the following:
August 31, November 30,
2000 1999
---- ----
(in thousands) (in thousands)
(unaudited)
Equipment $ 34 $ 34
Office equipment and fixtures 436 368
Leasehold improvements 8 8
---- ----
478 410
Less accumulated depreciation and amortization 318 275
---- ----
$160 $135
==== ====
-4-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 2000
(Continued)
-----------
5. Intangible Assets:
------------------
Intangible assets consist of the following:
August 31, November 30,
2000 1999
---- ----
(in thousands) (in thousands)
(unaudited)
Covenants not to compete $ 845 $ 845
Goodwill 300 300
Other 25 25
------ ------
1,170 1,170
Less accumulated amortization 962 867
------ ------
$ 208 $ 303
====== ======
6. 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.
7. Income Taxes:
-------------
Effective December 17, 1999, the Company and its parent will file a
consolidated federal income tax return. The Company and its parent each report
current and deferred income tax expense (benefit) under an allocation method
that results in a profitable company recognizing a tax provision as if the
individual company filed a separate return and loss companies recognizing
benefits to the extent their losses contribute to reduce consolidated taxes. In
addition, during the nine months ended August 31, 2000 the change in the
valuation allowance ($197,000) of the Company's deferred tax asset resulting
from its ability to file a consolidated return with the parent was recorded as a
tax benefit on the books of the Company.
The Consolidated current and deferred tax assets and liabilities are
recorded on the books of the parent, and the net tax-related balances due
to/from the parent are included in the intercompany balance. The tax-related
intercompany asset approximated $371,000 at August 31, 2000.
-5-
<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED AUGUST 31, 2000
(Continued)
-----------
8. Major Customer:
---------------
Sales to two major customers each approximated 11% of total sales for
the nine month periods ended August 31, 2000 and 1999.
-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 nine and three month periods ended August 31, 2000
approximated $4,833,000 and $1,584,000, respectively, as compared to $5,484,000
and $1,464,000 in the corresponding periods. The decline in sales is a result of
unfavorable market conditions and discontinued items. Gross profit on these
sales approximated $1,734,000 (36% of sales) and $563,000 (36% of sales) for the
nine and three month periods ended August 31, 2000 as compared to $2,249,000
(41% of sales) and $582,000 (40% of sales) in the corresponding period. The
decline in gross profit is a result of increased raw material and packaging
costs without a corresponding increase in selling price.
Selling, general and administrative expenses approximated $2,212,000
(46% of sales) and $654,000 (41% of sales) for the nine and three months ended
August 31, 2000, respectively, as compared to $3,027,000 (55% of sales) and
$1,066,000 (73% of sales) for the corresponding periods in 1999. 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.
The Company has recognized an income tax benefit of approximately
$371,000 for the nine month period ended August 31, 2000. The benefit reflects
the potential utilization of certain tax benefits by the Company's parent as a
result of becoming eligible to file a consolidated tax return.
-7-
<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
The Company has satisfactory implemented a plan to ensure that its
systems are compliant with the requirements to process transactions in the Year
2000. To date, the Company has not experienced any adverse effects related to
the Year 2000.
Liquidity and Capital Resources
-------------------------------
The Company had net working capital of $3,481,000 at August 31, 2000.
The Company's statement of cash flows reflects cash provided by
operations of approximately $246,000. This cash flow is comprised of a decrease
in inventories ($867,000) and an adjustment for depreciation and amortization of
($291,000), offset by a net loss of approximately ($107,000), increases in
operating assets such as accounts receivable ($351,000), prepaid income taxes
and other current assets ($144,000) and other assets ($244,000), and decreases
in accounts payable and accrued expenses ($57,000).
Net cash used in investing activities approximated ($68,000) for the
purchase of property plant and equipment.
The Company's Board of Directors has authorized the Company to
repurchase up to $2,000,000 of its own common stock, par value .0001, in the
public market. The Company's management has been afforded the discretion to
purchase the shares at such times, or times, and at such prices as management
believes appropriate. During the nine months ended August 31, 2000, the Company
acquired 48,185 shares of its common stock, at an average price of $4.13.
As of August 31, 2000, the Company had authorization to repurchase an
additional $331,000 worth of its own common stock.
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, 1999.
-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, 2000 By: /s/ Karine Hollander
--------------------------------
Karine Hollander
Chief Financial Officer
-10-
