<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 29, 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.
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(Exact name of Registrant as specified in its charter)
Delaware 11-3205937
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(State or other jurisdiction of (State or I.R.S. Employer
incorporation of organization) Identification Number)
145 Ricefield Lane
Hauppauge, New York
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(Address of principal executive offices)
11788
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(Zip Code)
(631) 273-2630
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(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 7, 2000
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Common Stock 1,350,000
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FUTUREBIOTICS, INC.
FORM 10-Q
QUARTERLY REPORT
For the Three Months Ended February 29, 2000
TABLE OF CONTENTS
Page to Page
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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>
February 29, 2000 November 30, 1999
----------------- -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 169 $ 94
Accounts receivable (less allowance for doubtful
accounts of $12) 1,572 1,138
Inventories (Note 3) 877 1,492
Due from parent 874 1,101
Prepaid expenses and other current assets 417 55
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Total current assets 3,909 3,880
PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) 150 135
INTANGIBLE ASSETS, NET (Note 5) 271 303
OTHER ASSETS 135 113
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$ 4,465 $ 4,431
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 53 $ 71
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Total current liabilities 53 71
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value;
authorized 40,000,000 shares;
1,350,000 issued and outstanding -- --
Preferred stock, $.0001 par value;
authorized issued and outstanding
8,335,000 shares 1 1
Additional paid-in capital 9,395 9,395
Unearned compensation (789) (840)
(Deficit) (2,642) (2,727)
Treasury stock at cost; 477,281 and
458,083 shares, respectively (1,553) (1,469)
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4,412 4,360
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$ 4,465 $ 4,431
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</TABLE>
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FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)
Three Months Ended
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February 29, February 28,
2000 1999
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NET SALES $ 1,858 $ 1,748
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COSTS AND EXPENSES:
Cost of sales 1,201 991
Selling, general and administrative 824 937
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2,025 1,928
OPERATING LOSS BEFORE BENEFIT
FOR INCOME TAX (167) (180)
INCOME TAX BENEFIT (252) (94)
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NET INCOME (LOSS) $ 85 $ (86)
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INCOME (LOSS) PER COMMON SHARE $ .10 $ (.06)
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WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 875,501 1,350,000
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FUTUREBIOTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
February 29, February 28,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 85 $ (86)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 97 114
Deferred income tax benefit --- (94)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (434) (54)
Inventories 615 190
Due to/from parent 227 (313)
Prepaid income taxes -- (5)
Prepaid expenses and other current assets (362) (12)
Other assets (22) 30
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (18) 132
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Total adjustments 103 (12)
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Net cash provided by (used in) operating activities 188 (98)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (29) --
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Net cash used in investing activities (29) --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (84) --
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Net cash used in financing activities (84) --
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Net increase (decrease) in cash and cash equivalents 75 (98)
Cash and cash equivalents at beginning of period 94 181
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Cash and cash equivalents at end of period $ 169 $ 83
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</TABLE>
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FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 29, 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 February 29, 2000 and the results of
operations and statements of cash flows for the three months ended February 29,
2000 and February 28, 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 three months ended February 29, 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 February 29,
2000 have been estimated using the gross profit method.
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FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 29, 2000
(Continued)
4. Property, Plant and Equipment:
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
------------------ ---------------
(in thousands) (in thousands)
(unaudited)
<S> <C> <C>
Equipment $ 34 $ 34
Office equipment and fixtures 397 368
Leasehold improvements 8 8
---- ----
439 410
Less accumulated depreciation
and amortization 289 275
---- ----
$150 $135
==== ====
</TABLE>
5. Intangible Assets:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
February 29, November 30,
2000 1999
------------------ -------------
(in thousands) (in thousands)
(unaudited)
<S> <C> <C>
Covenants not to compete $ 845 $ 845
Goodwill 300 300
Other 25 25
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1,170 1,170
Less accumulated amortization 899 867
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$ 271 $ 303
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</TABLE>
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<PAGE>
FUTUREBIOTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 29, 2000
(Continued)
6. Stockholders' Equity:
The income (loss) per common share is computed by dividing the net
income (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.
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 time or times, and at such prices, as management
believes appropriate. As of February 29, 2000, the Company had authorization to
purchase an additional $447,000 worth of its own stock.
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 quarter ended February 29, 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 $252,000 at February 29, 2000.
8. Major Customer
Sales to a major customer approximated 10% of total sales for the three
month periods ended February 29, 2000 and February 28, 1999.
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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 three month periods ended February 29, 2000 and
February 28, 1999, approximated $1,858,000 and $1,748,000, respectively. Gross
profit on these sales were approximately $657,000 (35% of sales) and $757,000
(43% of sales) for the three months ended February 29, 2000 and February 28,
1999, respectively. The decrease in gross profit is attributable to decreases in
average sales prices resulting from increased competition in the Company's
specialty items.
Selling, general and administrative expenses were $824,000 (44% of
sales) and $937,000 (54% of sales) for the three month periods ended February
29, 2000 and February 28, 1999, respectively. 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
$252,000 for the three month period ended February 29, 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.
The Company has satisfactorily 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.
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<PAGE>
FUTUREBIOTICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
The Company had net working capital of $3,856,000 at February 29, 2000.
The Company's statement of cash flows reflects cash provided by
operating activities of approximately $188,000 which reflects net earnings of
approximately $85,000, decreases in operating assets such as inventories
($615,000), due from parent ($227,000) and an adjustment for depreciation and
amortization ($97,000), offset by (i) increases in operating assets such as
accounts receivable ($434,000), prepaid and other current assets ($362,000), and
other assets ($22,000), and (ii) decreases in accounts payable and accrued
expenses ($18,000).
Net cash used in investing activities approximated ($84,000), for the
purchase of treasury stock.
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 time, or times, and at such prices, as management
believes appropriate. During the three months ended February 29, 2000, the
Company acquired 19,198 shares of its common stock, at an average price of
$4.34.
As of February 29, 2000, the Company had authorization to repurchase an
additional $447,000 worth of its own common stock.
The Company expects to meet its cash requirement from operations and
current cash reserves.
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<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.
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<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 14, 2000 By: /s/ Karine Hollander
-------------------------------
Karine Hollander
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contians summary financial information extracted from the
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-END> FEB-29-2000
<CASH> 169
<SECURITIES> 0
<RECEIVABLES> 1,584
<ALLOWANCES> 12
<INVENTORY> 877
<CURRENT-ASSETS> 3,909
<PP&E> 439
<DEPRECIATION> 289
<TOTAL-ASSETS> 4,465
<CURRENT-LIABILITIES> 53
<BONDS> 0
0
1
<COMMON> 0
<OTHER-SE> 4,411
<TOTAL-LIABILITY-AND-EQUITY> 4,465
<SALES> 1,858
<TOTAL-REVENUES> 1,858
<CGS> 1,201
<TOTAL-COSTS> 1,201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (167)
<INCOME-TAX> (252)
<INCOME-CONTINUING> 85
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
