U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
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Commission file number 1-13527
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BIOQUAL, INC.
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State of Delaware 13-3078199
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 Medical Center Drive, Rockville, Maryland 20850
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(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code (301) 251-2801
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the registrant filed all documents required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes X No ___
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Common Stock, $.01 par value per share; authorized 25,000,000 shares; 880,591
shares outstanding as of October 9, 2000.
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
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BIOQUAL, INC.
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INDEX
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Part I. Financial Information Page
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Item 1. Financial Statements.
Unaudited Consolidated Balance Sheets, May 31, 2000 and
August 31, 2000........................................................2
Unaudited Consolidated Statements of Operations for
the Three Months Ended August 31, 2000 and
August 31, 1999........................................................3
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended August 31, 2000 and
August 31, 1999........................................................4
Notes to Financial Statements............................................5
Item 2. Management's Discussion and Analysis...............................5
1
BIOQUAL, INC. AND SUBSIDIARY
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UNAUDITED CONSOLIDATED BALANCE SHEETS, MAY 31, 2000 AND AUGUST 31, 2000
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ASSETS AUGUST 31, 2000 MAY 31, 2000
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CURRENT ASSETS:
Cash and cash equivalents $ 73,137 $ 72,099
Accounts receivable:
Trade 1,375,944 1,633,110
Unbilled - current 186,342 317,296
Other 14,705 19,817
Prepaid expenses 119,358 95,069
Inventories 251,241 225,841
Deferred income taxes - current 84,800 116,800
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Total current assets 2,105,527 2,480,032
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FIXED ASSETS:
Leasehold improvements 1,028,472 1,007,976
Furniture, fixtures and equipment 3,601,201 3,545,423
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Total 4,629,673 4,553,399
Less accumulated depreciation and amortization 3,032,807 2,946,699
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Fixed assets, net 1,596,866 1,606,700
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DEFERRED INCOME TAXES - NONCURRENT 497,900 497,900
UNBILLED ACCOUNTS RECEIVABLE - NONCURRENT 356,956 440,687
OTHER NONCURRENT ASSETS 20,000
CASH VALUE OF OFFICERS' LIFE INSURANCE POLICIES 280,755 280,755
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TOTAL $ 4,838,004 $ 5,326,074
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LIABILITIES
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CURRENT LIABILITIES:
Borrowings under line of credit $ 359,539 $ 688,183
Current maturities of long-term debt 115,575 123,114
Accounts payable 207,983 201,254
Accrued compensation and related costs 293,847 469,361
Other accrued liabilities 109,101 85,759
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Total current liabilities 1,086,045 1,567,671
LONG-TERM DEBT 162,720 190,144
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Total liabilities 1,248,765 1,757,815
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STOCKHOLDERS' EQUITY
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Convertible preferred stock - par value of $1.00 per share, 500,000 shares authorized; no
shares issued and outstanding
Common stock - par value of $.01 per share; 25,000,000 shares authorized; 1,600,408 shares
issued; August 31, 2000, and May 31, 2000, 880,091 shares outstanding 16,004 16,004
Additional paid-in capital 7,475,035 7,475,035
Accumulated deficit (3,209,136) (3,230,136)
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Total 4,281,903 4,260,903
Less - treasury stock August 31, 2000, and, May 31, 2000, 720,317 shares, at cost (692,664) (692,644)
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Total stockholders' equity 3,589,239 3,568,259
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TOTAL $ 4,838,004 $ 5,326,074
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See notes to financial statements.
2
BIOQUAL, INC. AND SUBSIDIARY
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UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
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FOR THE THREE MONTHS ENDED AUGUST 31,
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2000 1999
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REVENUES AND SALES:
Contract revenues $3,072,278 $2,734,001
Product sales 3,260 31,371
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Total Revenues and Sales 3,075,538 2,765,372
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OPERATING EXPENSES:
Contract 2,458,364 2,161,246
Cost of goods sold 2,593 27,149
Research and development 17,432 53,921
General and administrative 505,611 486,049
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Total 2,984,000 2,728,365
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OPERATING INCOME 91,538 37,007
INTEREST INCOME 1,181 813
INTEREST EXPENSE (13,317) (12,818)
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INCOME BEFORE INCOME TAX 79,402 25,002
PROVISION FOR INCOME TAX 32,000 14,000
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NET INCOME $ 47,402 $ 11,002
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BASIC EARNINGS PER SHARE $ 0.05 $ 0.01
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DILUTED EARNINGS PER SHARE $ 0.05 $ 0.01
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
FOR BASIC EARNINGS PER SHARE 880,091 872,092
EFFECT OF DILUTIVE SECURITIES - OPTIONS 11,392 14,715
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
OPTIONS FOR DILUTIVE EARNINGS PER SHARE 891,483 886,807
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See notes to financial statements.
3
BIOQUAL, INC. AND SUBSIDIARY
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE THREE MONTHS ENDED AUGUST 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 47,402 $ 11,002
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Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 86,108 83,958
Deferred income taxes 32,000 5,000
Decrease (increase) in accounts receivable 476,963 (208,150)
Increase in prepaid expenses (24,289) (44,841)
(Increase) decrease in inventories (25,400) 5,813
Decrease (increase) in other assets 20,000 (40,000)
Decrease in accounts payable and accrued expenses (145,462) (201,252)
Common stock gifted to employees 9,392
Decrease in income taxes payable (15,000)
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Total Adjustments 419,920 (405,080)
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NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 467,322 (394,078)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (76,274) (62,273)
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NET CASH USED FOR INVESTING ACTIVITIES (76,274) (62,273)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds under line-of-credit agreement (328,644) 476,918
Dividend declared (26,403)
Principal payments under notes payable and capital lease obligations (34,963) (19,819)
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NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (390,010) 457,099
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NET INCREASE IN CASH AND CASH EQUIVALENTS 1,038 748
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,099 68,768
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 73,137 $ 69,516
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 16,650 $ 11,244
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Income taxes $ 22,500
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Treasury stock received for payment of loans to officer $ 24,750
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See notes to financial statements.
4
NOTES TO FINANCIAL STATEMENTS
Interim Financial Statements
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In the opinion of management, all adjustments consisting only of normal
recurring accruals necessary for a fair presentation of such amounts have been
included. The results of operations for the quarter are not necessarily
indicative of results for the year.
Inventories
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Inventories are stated at the lower of cost or market using the average cost
method.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Summary Analysis
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In this first quarter of fiscal year 2001, BIOQUAL, Inc. ("BIOQUAL") realized
net income of $47,402.
On July 12, 2000, the Board of Directors declared a cash dividend of $0.03 per
share for shareholders of record on September 11, 2000. The dividend was paid
on September 27, 2000. This was the second cash dividend declared by the
Company.
On July 26, 2000 the Company was awarded and began work on a Phase I Small
Business Innovative Research (SBIR) grant from the National Institute of Dental
and Craniofacial Research titled "The Hyrax as a Model for Facial Biomechanics
and Growth". The six-month grant totals $98,711.
On October 1, 2000 the Company won a renewal competition for a National Cancer
Institute (NCI) contract to support researchers at the NCI. The contract
entitled "Development of New Methods and Strategies for Diagnosis and Treatment
of Invasive Infections in Patients with Cancer" totals $376,536 and extends for
five years to September 2005.
Results of Operations
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For the three months of operations ended August 31, 2000 (the Company's first
quarter), contract revenues increased by 12.4% or $338,277 to $3,072,278
compared to $2,734,001 in the first quarter of fiscal year 2000. This increase
is primarily due to an increase in government contract activity including
approximately $103,000 in reimbursable costs related to a toxicity study which
began during the third quarter of fiscal year 2000, and the funding of a $25,858
indirect rate variance cost overrun of a contract that expired in fiscal year
1996 (the contract was administratively closed out on August 24, 2000). Product
sales decreased to $3,260 compared to $31,371 in fiscal year 2000. Contract
operating expenses increased 13.7% or $297,118 compared to the first quarter of
fiscal year 2000 primarily due to increased government contract activity
(including the $103,000 in costs related to a toxicity study as mentioned
above). Cost of goods sold decreased to $2,593 from $27,149 in the first quarter
of fiscal year 2000. This decrease was primarily due to the decrease in
units of products sold during this fiscal year. Research and development (R&D)
expenses decreased to
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$17,432 compared to $53,921 in the first quarter of fiscal year 2000. This
decrease is primarily due to a voluntary reduction in staffing in the Company's
Department of Discovery Research. General and administrative expenses increased
4.0% compared to the first quarter of fiscal year 2000 primarily due to
inflationary increases in several items of expense. Total operating expenses
increased 9.4% due to the above.
Operating income increased to $91,538 compared to $37,007 in the same quarter of
the prior fiscal year. The increase is primarily due to 1) the funding of a
$25,858 indirect rate variance cost overrun of a contract that expired in fiscal
year 1996 as mentioned above and 2) the decrease in R&D expenses.
For this quarter, BIOQUAL had interest expense of $13,317 compared to interest
expense of $12,818 in the prior year.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax expense of $32,000 for the three months
ended August 31, 2000. The Company will utilize available state net operating
loss ("NOL") carryforwards to offset state income tax. The state NOL
carryforwards become available for use as a result of the December 31, 1999
merger between Diagnon Corporation and BIOQUAL, Inc.
Earnings Per Share (EPS) - For the three month comparison, options to purchase
5,502 shares of common stock at a price of $3.375 per share were outstanding at
August 31, 2000 but were not included in the computation of diluted EPS because
the exercise prices were greater than the market price of the common shares.
Options to purchase 38,504 shares of common stock at prices ranging from $2.52
per share to $3.375 per share were outstanding at August 31, 1999 but were not
included in the computation of diluted EPS because the exercise prices were
greater than the market price of the common shares.
Liquidity and Capital Resources
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Assets
The changes in cash and cash equivalents are detailed in the Statements of
Consolidated Cash Flows on page 4. Total assets decreased $488,070. This amount
was primarily attributable to a decrease to accounts receivable of $476,963
consisting mainly of 1) a decrease of $257,166 in trade accounts receivable
reflecting a faster collection rate compared to the previous fiscal year end, 2)
a $214,685 decrease in unbilled accounts receivable (current plus noncurrent)
primarily resulting from a $83,731 decrease in reimbursable indirect rate
variances for the current fiscal year, a net $125,671 decrease in month end
accrued sales on accrued direct labor comparing the current period and the
accrual at the end of fiscal year 2000, and a $5,283 decrease in prior year rate
variance billed this quarter, and 3) a $5,112 decrease in other accounts
receivable. Other noncurrent assets decreased $20,000 representing a final
payment on a nonhuman primate housing unit order from the previous fiscal year
end. Deferred income taxes decreased by $32,000 as a result of utilizing a
portion of the federal income tax loss carryforward. Fixed assets, net of
accumulated depreciation and amortization decreased $9,834 reflecting
depreciation and amortization of $86,108 offset by
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fixed asset purchases of $76,274 (mainly laboratory equipment and facility
improvements).
The decrease above is partially offset by 1) an increase in prepaid expenses of
$24,289 primarily due to the prepayment of business liability and life insurance
premiums, and 2) an increase in inventories of $25,400. The balance of the
decrease was due to other miscellaneous factors.
Liabilities
In the first three months of operations, total liabilities decreased $509,050
from $1,757,815 at May 31, 2000 to $1,248,765 at August 31, 2000. This decrease
is primarily attributable to 1) a decrease to borrowings under line-of-credit of
$328,644 reflecting the faster collection of trade accounts receivable, 2) a
decrease in accrued compensation and related costs of $175,514 reflecting a
shorter accrual period this quarter when compared to the prior year end and the
payment of accrued bonuses from fiscal year 2000 during this quarter, and 3)
payments totaling $34,963 on capital leases and notes payable reducing long-term
debt.
The decrease above is partially offset by a $23,342 increase in other accrued
liabilities. This increase is primarily due to a $26,403 accrual of the cash
dividend declared on July 12, 2000 and paid on September 25, 2000. The balance
of the decrease was due to other miscellaneous factors.
Stockholders' Equity
In the first three months of operation in fiscal year 2001, stockholders' equity
increased $20,980 primarily due to the Company realizing $47,402 of net income
offset by the $26,403 cash dividend declared on July 12, 2000.
Capital Resources
The Company believes it has sufficient cash and financing sources to provide for
its ongoing operations and the Company continues to believe that the impact of
inflation, or the absence of it, will have no significant effect on its
operations.
Forward Looking Information
Statements herein that are not descriptions of historical facts are forward-
looking and subject to risk and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors including
those set forth in BIOQUAL's Securities and Exchange Commission filings under
"Risk Factors", including risks relating to the early stage of products under
development; uncertainties relating to clinical trials; dependence on third
parties' future capital needs; and risks relating to the commercialization, if
any, of BIOQUAL's proposed products (such as marketing, safety, regulatory,
patent, product liability, supply, competition and other risks).
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOQUAL, INC.
DATE October 12, 2000 /s/ John C. Landon
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Chairman of the Board,
President and Chief Executive
Officer
DATE October 12, 2000 /s/ Michael P. O'Flaherty
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Chief Operating Officer and
Secretary
DATE October 12, 2000 /s/ David A. Newcomer
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Chief Financial Officer
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