ENERGY BIOSYSTEMS CORPORATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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: 0-21130
ENERGY BIOSYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3078857
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4200 Research Forest Drive
The Woodlands, Texas 77381
(Address of principal executive offices) (zip code)
(713) 364-6100
(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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
As of May 9, 1996 there were outstanding 11,142,868 shares of Common Stock, par
value $.01 per share, of the registrant.
1
ENERGY BIOSYSTEMS CORPORATION
Form 10-Q for the Quarter Ended March 31, 1996
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets as of March 31, 1996
(Unaudited) and December 31, 1995 4
Statements of Operations for the Three
Months Ended March 31, 1996 and 1995
(Unaudited) 5
Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995
(Unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
ENERGY BIOSYSTEMS CORPORATION
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made herein are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
The information presented in the accompanying financial statements is
unaudited, but in the opinion of management, reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly such
information.
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ENERGY BIOSYSTEMS CORPORATION
BALANCE SHEETS
March 31, December 31,
1996 1995
ASSETS ------------- -------------
------ (Unaudited)
Current assets:
Cash and cash equivalents $ 4,800,518 $ 6,172,400
Short term investments 10,428,337 10,431,444
Prepaid expenses and other current
assets 566,297 687,530
------------ ------------
Total current assets $ 15,795,152 $ 17,291,374
Long term investments 1,987,188 2,492,874
Notes receivable 36,077 45,633
Furniture, equipment and leasehold
improvements, net 3,217,095 3,322,609
Intangible and other assets, net 685,427 656,961
------------ ------------
Total assets $ 21,720,939 $ 23,809,451
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 458,549 $ 494,307
Accrued liabilities 16,867 97,227
Current portion of deferred revenue 1,044,000 1,314,000
Current portion of obligations
under capital lease 7,450 7,256
Note payable 184,133 294,713
------------ ------------
Total current liabilities $ 1,710,999 $ 2,207,503
------------ ------------
Long term liabilities:
Capital lease obligations 9,697 11,632
Deferred revenue -- 13,500
------------ ------------
Total long term liabilities $ 9,697 $ 25,132
------------ ------------
Stockholders' equity:
Series A Convertible Preferred Stock,
$0.01 par value (liquidation value
$24,000,000; 508,800 shares authorized,
480,000 shares issued and outstanding) 23,587,279 22,968,152
Common Stock, $0.01 par value
(30,000,000 shares authorized,
11,142,868 and 10,584,269 issued
and outstanding, respectively) 111,429 105,843
Additional paid-in capital 30,046,009 29,823,343
Accumulated deficit (33,744,474) (31,320,522)
------------ ------------
Total stockholders' equity $ 20,000,243 $ 21,576,816
------------ ------------
Total liabilities and
stockholders' equity $ 21,720,939 $ 23,809,451
============ ============
The accompanying notes are an integral part of these financial statements.
4
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1996 1995
------------ ------------
REVENUES:
Sponsored research revenues $ 500,472 $ 283,500
Interest and investment income 252,570 362,878
----------- -----------
Total revenues 753,042 646,378
----------- -----------
COSTS AND EXPENSES:
Research and development 2,015,769 1,801,020
General and administrative 621,225 824,857
----------- -----------
Total costs and expenses 2,636,994 2,625,877
----------- -----------
NET LOSS $(1,883,952) $(1,979,499)
----------- -----------
NET LOSS PER COMMON SHARE $(0.23) $(0.25)
=========== ===========
SHARES USED IN COMPUTING NET LOSS
PER COMMON SHARE 10,995,000 10,025,052
=========== ===========
The accompanying notes are an integral part of these financial statements.
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ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,883,952) $ (1,979,499)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 265,230 197,716
Compensation expense related to
stock options and stock issued
for services rendered -- 62,500
Changes in increase assets and
liabilities:
Decrease (increase) in trading
securities 973,555 (11,070,935)
Decrease in prepaid expenses and
other current assets 121,233 170,595
Increase in intangible and
other assets and notes receivable (22,420) (88,666)
Increase (decrease) in accounts
payable and accrued liabilities (116,118) 75,657
Decrease in deferred revenues (283,500) (283,500)
----------- ------------
Net cash used in operating activities (945,972) (12,916,132)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (156,206) (871,149)
Net purchase of investments (464,726) --
----------- ------------
Net cash used in investing
activities (620,968) (871,149)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (1,741) (2,606)
Payment on notes payable (110,580) --
Issuance of stock, net 307,379 70,337
----------- ------------
Net cash provided by financing
activities 195,058 67,731
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,371,882) (13,719,550)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 6,172,400 28,283,809
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 4,800,518 $ 14,564,259
=========== ============
The accompanying notes are an integral part of these financial statements.
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ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
Note 1. - Basis of Presentation and Significant Accounting Policies
Energy BioSystems Corporation (the "Company"), formerly Environmental
BioScience Corporation, was incorporated in the State of Delaware on December
20, 1989. Since inception, the Company has devoted substantially all of its
efforts to research and development. The Company's revenues consist of
sponsored research revenues and interest income. Management of the Company
anticipates continued operating losses for at least the next several years. The
accompanying unaudited interim financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods presented. These financial statements
should be read in conjunction with the Company's Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission, for the fiscal year ended
December 31, 1995.
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ENERGY BIOSYSTEMS CORPORATION
Net Loss Per Common Share
Net loss per share has been computed by dividing the net loss, which has been
increased for periodic accretion and accrued dividends on the Series A
Convertible Preferred Stock issued in October 1994, by the weighted average
number of shares of common stock outstanding during the period. In all
applicable periods, common stock equivalents were antidilutive and, accordingly,
were not included in the computation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.
Note 2. - Series A Convertible Preferred Stock
In October , 1994, the Company offered and sold 480,000 shares of Series A
Convertible Preferred Stock ("Preferred Stock") at $50.00 per share in a private
placement. The net proceeds from the offering were approximately $22.2 million.
The placement agents for the Preferred Stock received warrants to purchase an
aggregate of 28,800 shares of Preferred Stock at an exercise price of $50.00 per
share of Preferred Stock in addition to customary commissions.
Dividends on the Preferred Stock are cumulative and payable semi-annually
from October 27, 1994, at an annual rate equal to $4.00 per share if paid
in cash and $4.50 per share if paid in common stock. The shares of Preferred
Stock are convertible into shares of the Company's common stock at the option of
the holder at a conversion price equal to $8.25 per share of common stock,
subject to adjustment in certain circumstances. The Preferred Stock, if not
redeemed earlier, must be redeemed on November 7, 1999 at the redemption price.
The redemption price, which is equal to $50.00 per share plus accrued and unpaid
dividends, may be paid in shares of common stock or cash or in a combination of
common stock and cash, at the Company's option. It is the Company's intent,
however, to redeem the Preferred Stock for common stock. Accordingly, the
Preferred Stock is included in stockholders' equity.
The carrying amount of the Preferred Stock is increased for accrued and unpaid
dividends plus periodic accretion, using the effective interest method, such
that the carrying amount will equal the redemption amount on November 7, 1999.
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ENERGY BIOSYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Since its inception in December 1989, the Company has devoted substantially
all resources to its research and development. To date, all of the Company's
revenues have resulted from interest income and sponsored research payments from
collaborative agreements. The Company has incurred cumulative net losses since
inception and expects to incur substantial losses for at least the next several
years, due primarily to the increase in its research and development activities
and acceleration of the development of its biocatalyst, fermentation and
bioreactor programs. The Company expects that losses will fluctuate from quarter
to quarter and that such fluctuations may be substantial. As of March 31, 1996,
the Company's accumulated deficit was $33,744,474.
Results of Operations
The Company had total revenues for the three months ended March 31, 1996
and 1995 of $753,042 and $646,378, respectively. The Company had sponsored
research revenues of $500,472 during the first three months of 1996 as compared
to $283,500 during the first three months of 1995. The Company recognized
revenues of $283,500 under its research collaboration agreement with Petrolite
Corporation ("Petrolite") for each of the three month periods ended March 31,
1996 and 1995. Payments under the Petrolite agreement were initiated on April
1, 1992 and the final payment was received in March 1994. Revenue attributable
to the Petrolite agreement, however, is recognized ratably over the period for
which research and development costs are to be incurred under the terms of the
agreement. As of March 31, 1996, an aggregate of $1,044,000 of the payments
received under the Petrolite agreement was classified as deferred revenue and
will be recognized as revenue in future periods. The increase in sponsored
research revenues of $216,972 for the first quarter of 1996 compared to the
first quarter of 1995 is attributable to sponsored research revenue of $66,972
from a National Institutes of Science and Technology ("NIST") grant and $150,000
from an agreement with Carbide/Graphite Group, Inc. ("Carbide/Graphite").
Interest income and other revenues decreased by $110,308 for the first three
months of 1996 compared to the first three months of 1995 primarily as a result
of the decrease in the available cash from which investment income and capital
gains are generated.
The Company had research and development expenses for the three months ended
March 31, 1996 and 1995 of $2,015,769 and $1,801,020, respectively. The
increase in research and development expenses of $214,749 for the three months
ended March 31, 1996 as compared to the corresponding prior year period resulted
primarily from the addition of 16 research and development personnel and
laboratory expansion. The Company expects its research and development expenses
to increase during the remainder of 1996, reflecting increased expenditures
related to hiring additional personnel and an approximate 4,500 square foot
expansion of the Company's laboratory facilities completed at the end of the
first quarter of 1996.
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ENERGY BIOSYSTEMS CORPORATION
The Company had general and administrative expenses for the three months ended
March 31, 1996 and 1995 of $621,225 and $824,857, respectively. The decrease of
$203,632 for the three months ended March 31, 1996 as compared to the
corresponding prior year period resulted primarily from a decrease in
professional fees related to the stock rights plan adopted in the prior year.
The Company expects a slight increase in its general and administrative expenses
during the remainder of 1996 in support of its expanded research activities and
corporate development activities.
Liquidity and Capital Resources
The Company completed its initial public offering in March 1993 resulting in
net cash proceeds of approximately $14.9 million. In October 1994 the Company
privately placed 480,000 shares of its Series A Convertible Preferred Stock
resulting in net cash proceeds of approximately $22.2 million. Dividends on the
Preferred Stock are cumulative from the date of the initial closing, October 27,
1994, and are payable in cash or common stock of the Company, or a combination
thereof, at an annual rate equal to $4.00 per share if paid in cash and $4.50
per share if paid in common stock. The shares of Preferred Stock are
convertible into shares of the Company's common stock at the option of the
holder at a conversion price equal to $8.25 per share of common stock, subject
to adjustment in certain circumstances.
Prior to its initial public offering, the Company had financed its operations
through private placements of equity securities, revenues from collaborative
research agreements and interest income earned on the net proceeds from these
private placements.
For the three months ended March 31, 1996, the Company used $1,919,527 of net
cash in operating activities (excluding the net sales and purchases of trading
securities), incurred $156,206 in capital expenditures and received $195,058
from financing activities. At March 31, 1996, the Company had cash, cash
equivalents, and short term investments totaling $15,228,855 and working capital
of $14,084,153.
The Company intends to spend approximately $575,000 during the remainder of
1996 for the purchase of laboratory and analytical instrumentation. The Company
also expects to incur substantial additional research and development expenses,
including expenses associated with biocatalyst, fermentation and bioreactor
development. The Company has funding commitments through 1996 requiring the
Company to spend approximately $67,400 under research and development
agreements. The Company also expects its general and administrative expenses to
increase as it adds marketing, sales and other personnel to support its
increased research and development of the Company's proprietary biocatalytic
desulfurization ("BDS") technology.
To supplement its research and development budgets, the Company intends to
seek additional collaborative research and development agreements with corporate
partners. In this regard, the Company has entered into collaborative agreements
with The Petrolite
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ENERGY BIOSYSTEMS CORPORATION
Corporation, the Exploration and Production Technology Division of Texaco, Inc.,
Total Raffinage Distribution S.A., The M. W. Kellogg Company, Koch Refining
Company and Carbide/Graphite Group, Inc., among others, as more fully described
in the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
The Company believes that its available cash, short-term investments and
interest income will be adequate to satisfy its funding needs through late 1997
to early 1998. The Company's future funding requirements will depend on many
factors, including the progress of the Company's research and development,
timing of environmental regulations, the rate of technological advances,
determinations as to the commercial potential of the Company's technology under
development, the status of competitive technology, the establishment of
biocatalyst manufacturing capacity or third-party manufacturing arrangements and
the establishment of collaborative relationships. The Company may seek
additional funding through public or private financings, including equity
financings and through collaborative arrangements.
FORWARD LOOKING STATEMENT
This Form 10-Q includes "forward-looking statements" within the meaning of
section 27A of the Securities Act of 1933, as amended,and section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q are forward-looking
statements. The expectations reflected in the forward-looking statements are
based on the Company's current views with respect to future events as well as
assumptions made by and information currently available to management. Important
factors that could cause actual results to differ materially from expectations
("Cautionary Statements") are disclosed in this Form 10-Q, and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 (the "Form
10-K"), including without limitation in conjunction with the forward-looking
statements included in this Form 10-Q and under the caption "Item 1.
Business--Risk Factors in the Form 10-K". All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
Part II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number
------
3.1(a) Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 2 filed with
Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form 8-A as filed with the
Commission on March 15, 1993).
3.1(b) Certificate of Powers, Designations, Preferences
and Rights of the Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
3.1(c) Certificate of Designation of Series One Junior
Participating Preferred Stock of the Company (incorporated
by reference to Exhibit 3.1(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
3.2 Bylaws (incorporated by reference to Exhibit 3 filed with
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form 8-A as filed with the Commission on
March 15, 1993).
4.1 Form of Stock Purchase Agreement, dated as of October 27, 1994,
by and between the Company and the Purchasers of the Series A
Convertible Preferred Stock (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the ended September 30, 1994).
4.2 Stockholder Rights Agreement, dated as of March 8, 1995,
between the Company and Society National Bank
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated March 8, 1995).
11.1 Statement regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule
b. Reports on Form 8-K
None.
11
ENERGY BIOSYSTEMS CORPORATION
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.
ENERGY BIOSYSTEMS CORPORATION
Date: May , 1996 By: /s/ John H. Webb
----------------------
John H. Webb
President and Chief Executive Officer
Date: May , 1996 By: /s/ Paul G. Brown III
---------------------
Paul G. Brown III
Vice President, Finance and Administration
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ENERGY BIOSYSTEMS CORPORATION
INDEX TO EXHIBITS
Exhibit Page
Number Description of Exhibits Number
- - ------ ----------------------- ------
3.1(a) Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 2 filed with
Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form 8-A as filed with the
Commission on March 15, 1993).
3.1(b) Certificate of Powers, Designations, Preferences
and Rights of the Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
3.1(c) Certificate of Designation of Series One Junior
Participating Preferred Stock of the Company (incorporated
by reference to Exhibit 3.1(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
3.2 Bylaws (incorporated by reference to Exhibit 3 filed with
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form 8-A as filed with the Commission on
March 15, 1993).
4.1 Form of Stock Purchase Agreement, dated as of October 27, 1994,
by and between the Company and the Purchasers of the Series A
Convertible Preferred Stock (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the ended September 30, 1994).
4.2 Stockholder Rights Agreement, dated as of March 8, 1995,
between the Company and Society National Bank
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated March 8, 1995).
11.1 Statement regarding Computation of Per Share Earnings. 15
27.1 Financial Data Schedule 19
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13