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 November 30, 2000
-----------------
Commission file number 1-13527
-------
BIOQUAL, INC.
-------------
State of Delaware 13-3078199
----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 Medical Center Drive, Rockville, Maryland 20850
---------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code (301) 251-2801
Not Applicable
--------------
(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 ___
---
Common Stock, $.01 par value per share; authorized 25,000,000 shares; 880,425
shares outstanding as of January 10, 2001.
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
---
BIOQUAL, INC.
-------------
INDEX
-----
Part I. Financial Information Page
------------------------------ ----
Item 1. Financial Statements.
Unaudited Consolidated Balance Sheets, May 31, 2000 and
November 30, 2000................................................ 2
Unaudited Consolidated Statements of Operations for
the Three Months Ended November 30, 2000 and
November 30, 1999................................................ 3
Unaudited Consolidated Statements of Operations for
the Six Months Ended November 30, 2000 and
November 30, 1999................................................ 4
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended November 30, 2000 and
November 30, 1999................................................ 5
Notes to Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis.......................... 6
Part II. Other Information
---------------------------
Item 4. Submission of Matters to a Vote of
Security Holders............................................ 10
1
BIOQUAL, INC. AND SUBSIDIARY
----------------------------
UNAUDITED CONSOLIDATED BALANCE SHEETS, MAY 31, 2000 AND NOVEMBER 30, 2000
-------------------------------------------------------------------------
ASSETS NOVEMBER 30, 2000 MAY 31, 2000
------ ----------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 74,220 $ 72,099
Accounts receivable:
Trade 1,315,031 1,633,110
Unbilled - current 323,286 317,296
Other 16,128 19,817
Prepaid expenses 121,410 95,069
Inventories 243,171 225,841
Deferred income taxes - current 36,800 116,800
------------- -----------
Total current assets 2,130,046 2,480,032
------------- -----------
FIXED ASSETS:
Leasehold improvements 992,627 1,007,976
Furniture, fixtures and equipment 3,607,647 3,545,423
------------- -----------
Total 4,600,274 4,553,399
Less accumulated depreciation and amortization 3,092,951 2,946,699
------------- -----------
Fixed assets, net 1,507,323 1,606,700
------------- -----------
DEFERRED INCOME TAXES - NONCURRENT 497,900 497,900
UNBILLED ACCOUNTS RECEIVABLE - NONCURRENT 332,057 440,687
OTHER NONCURRENT ASSETS 20,000
CASH VALUE OF OFFICERS' LIFE INSURANCE POLICIES 280,755 280,755
------------- -----------
TOTAL $ 4,748,081 $ 5,326,074
============= ===========
LIABILITIES
-----------
CURRENT LIABILITIES:
Borrowings under line of credit $ 278,810 $ 688,183
Current maturities of long-term debt 107,859 123,114
Accounts payable 117,413 201,254
Accrued compensation and related costs 360,756 469,361
Other accrued liabilities 81,361 85,759
------------- -----------
Total current liabilities 946,199 1,567,671
LONG-TERM DEBT 139,991 190,144
------------- -----------
Total liabilities 1,086,190 1,757,815
------------- -----------
STOCKHOLDERS' EQUITY
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; November 30, 2000,
880,425 shares, May 31, 2000, 880,091 shares outstanding 16,004 16,004
Additional paid-in capital 7,475,035 7,475,035
Accumulated deficit (3,137,085) (3,230,136)
------------- -----------
Total 4,353,954 4,260,903
Less - treasury stock November 30, 2000, 719,983 shares, May 31, 2000, 720,317
shares, at cost (692,063) (692,644)
------------- -----------
Total stockholders' equity 3,661,891 3,568,259
------------- -----------
TOTAL $ 4,748,081 $ 5,326,074
============= ===========
See notes to financial statements.
2
BIOQUAL, INC. AND SUBSIDIARY
----------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
FOR THE THREE MONTHS ENDED NOVEMBER 30,
---------------------------------------
2000 1999
---- ----
REVENUES AND SALES:
Contract revenues $ 2,930,652 $ 2,962,977
Product sales 8,577 8,139
------------ ------------
Total Revenues and Sales 2,939,229 2,971,116
------------ ------------
OPERATING EXPENSES:
Contract 2,260,600 2,380,552
Cost of goods sold 8,070 8,891
Research and development 14,078 46,950
General and administrative 523,523 486,441
------------ ------------
Total 2,806,271 2,922,834
------------ ------------
OPERATING INCOME 132,958 48,282
INTEREST INCOME 1,127 807
INTEREST EXPENSE (14,035) (14,789)
------------ ------------
INCOME BEFORE INCOME TAX 120,050 34,300
PROVISION FOR INCOME TAX 48,000 10,000
------------ ------------
NET INCOME $ 72,050 $ 24,300
============ ============
BASIC EARNINGS PER SHARE $ 0.08 $ 0.03
============ ============
DILUTED EARNINGS PER SHARE $ 0.08 $ 0.03
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR BASIC EARNINGS
PER SHARE 880,157 869,286
EFFECT OF DILUTIVE SECURITIES -
OPTIONS 12,197 15,450
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING OPTIONS FOR DILUTIVE
EARNINGS PER SHARE 892,354 884,736
============ ============
See notes to financial statements.
3
BIOQUAL, INC. AND SUBSIDIARY
----------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
FOR THE SIX MONTHS ENDED NOVEMBER 30,
-------------------------------------
2000 1999
---- ----
REVENUES AND SALES:
Contract revenues $ 6,002,930 $ 5,696,978
Product sales 11,837 39,510
------------ ------------
Total Revenues and Sales 6,014,767 5,736,488
------------ ------------
OPERATING EXPENSES:
Contract 4,718,965 4,541,798
Cost of goods sold 10,663 36,040
Research and development 31,510 100,871
General and administrative 1,029,133 972,490
------------ ------------
Total 5,790,271 5,651,199
------------ ------------
OPERATING INCOME 224,496 85,289
INTEREST INCOME 2,308 1,620
INTEREST EXPENSE (27,352) (27,607)
------------ ------------
INCOME BEFORE INCOME TAX 199,452 59,302
PROVISION FOR INCOME TAX 80,000 24,000
------------ ------------
NET INCOME $ 119,452 $ 35,302
============ ============
BASIC EARNINGS PER SHARE $ 0.14 $ 0.04
============ ============
DILUTED EARNINGS PER SHARE $ 0.13 $ 0.04
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR BASIC EARNINGS
PER SHARE 880,124 870,696
EFFECT OF DILUTIVE SECURITIES -
OPTIONS 11,795 15,450
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING OPTIONS FOR DILUTIVE
EARNINGS PER SHARE 891,919 886,146
============ ============
See notes to financial statements.
4
BIOQUAL, INC. AND SUBSIDIARY
----------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE SIX MONTHS ENDED NOVEMBER 30,
-------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 119,452 $ 35,302
--------------- ---------------
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 203,972 134,300
Deferred income taxes 80,000 5,000
Decrease (increase) in accounts receivable 424,408 (249,945)
Increase in prepaid expenses (26,341) (33,416)
Increase in inventories (17,330) (10,499)
Decrease (increase) in other assets 20,000 (36,000)
Decrease in accounts payable and accrued expenses (196,844) (171,142)
Common stock gifted to employees 9,392
Decrease in income taxes payable (24,281)
--------------- ---------------
Total Adjustments 487,865 (376,591)
--------------- ---------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 607,317 (341,289)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (104,595) (164,847)
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (104,595) (164,847)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds under line-of-credit agreement (409,373) 556,742
Net proceeds from exercise of stock options 581 5,526
Dividend paid (26,401) (17,363)
Principal payments under notes payable and capital
lease obligations (65,408) (37,214)
--------------- ---------------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (500,601) 507,691
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,121 1,555
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,099 68,768
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74,220 $ 70,323
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 30,663 $ 26,036
=============== ===============
Income taxes $ 57,600
===============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Treasury stock received for payment of loans to officer $ 32,906
===============
See notes to financial statements.
5
NOTES TO FINANCIAL STATEMENTS
Interim Financial Statements
----------------------------
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
-----------
Inventories are stated at the lower of cost or market using the average cost
method.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Summary Analysis
----------------
In this second quarter of fiscal year 2001, BIOQUAL, Inc. ("BIOQUAL") realized
net income of $72,050. Net income for the six months of fiscal year 2001 totaled
$119,452.
On October 1, 2000, BIOQUAL 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.
On December 18, 2000, BIOQUAL won a renewal competition for a NCI contract to
support the Institute's AIDS researchers. The contract entitled "Nonhuman
Primate Models of AIDS: Prophylactic and Therapeutic Studies" totals $4,628,783
and extends for five years to December 2005.
Results of Operations
---------------------
Three Month Comparison
----------------------
For the three months of operations ended November 30, 2000 (BIOQUAL's second
quarter), contract revenues decreased by 1.1% or $32,325 to $2,930,652 compared
to $2,962,977 in the second quarter of fiscal year 2000. This decrease is
primarily due to a decrease of $141,000 in reimbursable costs related to a
toxicity study compared to similar costs recorded in the second quarter of
fiscal year 2000. Offsetting the above decrease in revenues was the fiscal year
2000 reserve of $50,000 for an indirect cost overrun on a contract that expired
on December 27, 1999. An increase in government contract activity also partially
offsets the above net decrease. Product sales increased to $8,577 compared to
$8,139 in fiscal year 2000. Contract operating expenses decreased 5.0% or
$119,952 compared to the second quarter of fiscal year 2000 primarily due to 1)
a decrease of $141,000 in reimbursable costs related to a toxicity study
compared to similar costs recorded in the second quarter of fiscal year 2000,
and 2) a decrease in overhead costs of approximately $40,000 supporting the
equine production facility as compared to the second quarter of fiscal year
2000. An increase in government contract activity partially offsets the above
net decrease. Cost of goods sold decreased to $8,070 from $8,891 in the second
quarter of fiscal year 2000. This decrease was primarily due to the decrease in
6
the number of complimentary samples provided to customers during this fiscal
year compared to the previous year. Research and development (R&D) expenses
decreased to $14,078 compared to $46,950 in the second quarter of fiscal year
2000. This decrease is primarily due to a voluntary reduction in staffing in
BIOQUAL's Department of Discovery Research. General and administrative expenses
increased 7.6% compared to the second quarter of fiscal year 2000 primarily due
to inflationary increases in several items of expense and additional indirect
labor costs incurred by senior technical staff. Total operating expenses
decreased 4.0% due to the above.
Operating income increased to $132,958 compared to $48,282 in the same quarter
of the prior fiscal year. The increase is primarily due to 1) the decrease in
R&D expenses, 2) the decrease in overhead expenses supporting the equine
production facility, and 3) the fiscal year 2000 reserve for a $50,000 indirect
cost overrun on a contract that ended on December 27, 1999.
For this quarter, BIOQUAL had interest expense of $14,035 compared to interest
expense of $14,789 in the prior year.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax expense of $48,000 for the three months
ended November 30, 2000. The Company will utilize available state net operating
loss ("NOL") carryforwards to offset state income tax. The state NOL
carryforwards became 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
38,670 shares of common stock at prices ranging from $2.52 per share to $3.375
per share were outstanding on November 30, 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 29,502 shares of common
stock at prices ranging from $2.8875 per share to $3.375 per share were
outstanding on November 30, 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.
Six Month Comparison
--------------------
For the six months of operations ended November 30, 2000, contract revenues
increased by 5.4% or $305,952 compared to the first six months of fiscal year
2000. This increase was primarily due to 1) increased government contract
activity, 2) the fiscal year 2000 reserve of $50,000 for an indirect cost
overrun on a contract that expired on December 27, 1999, and 3) 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 $11,837 compared to $39,510 in fiscal year 2000.
Contract operating expenses increased 3.9% or $177,167 compared to the first six
months of fiscal year 2000 primarily due to increased government contract
activity, offset by a decrease in overhead expenses of approximately $40,000
supporting the equine production facility compared to the first six months in
fiscal year 2000. Cost of goods sold decreased to $10,663 from $36,040 in the
first six months of fiscal year 2000. This decrease was primarily due to the
decrease in units sold
7
during this fiscal year. Research and development (R&D) expenses decreased to
$31,510 compared to $100,871 in the first six months of fiscal year 2000. This
decrease is primarily due to a voluntary reduction in staffing in BIOQUAL's
Department of Discovery Research. General and administrative expenses increased
5.8% compared to the first six months of fiscal year 2000 primarily due to
inflationary increases in several items of expense and additional indirect labor
costs incurred by senior technical staff. Total operating expenses increased
2.5% due to the above.
Operating income increased to $224,496 compared to $85,289 in the same period 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, 2) the decrease in R&D expenses, 3) the decrease
in overhead expenses supporting the equine production facility, and 4) the
fiscal year 2000 reserve for a $50,000 indirect cost overrun on a contract that
ended on December 27, 1999.
For the six months of this fiscal year, the Company had interest expense of
$27,352 compared to interest expense of $27,607 in the prior year.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax expense of $80,000 for the six months
ended November 30, 2000. The Company will utilize available state net operating
loss ("NOL") carryforwards to offset state income tax. The state NOL
carryforwards became available for use as a result of the December 31, 1999
merger between Diagnon Corporation and its wholly owned subsidiary, BIOQUAL,
Inc.
Earnings Per Share (EPS) - For the six month comparison, options to purchase
38,670 shares of common stock at prices ranging from $2.52 per share to $3.375
per share were outstanding on November 30, 2000 but were not included in the
computation of diluted EPS because the option exercise prices were greater than
the market price of the common shares. Options to purchase 29,502 shares of
common stock at prices ranging from $2.8875 per share to $3.375 per share were
outstanding on November 30, 1999 but were not included in the computation of
diluted EPS because the option exercise prices were greater than the market
price of the common shares.
Liquidity and Capital Resources
-------------------------------
Assets
The changes in cash and cash equivalents are detailed in the Statements of
Consolidated Cash Flows on page 5. Total assets decreased $577,993. This amount
was primarily attributable to a decrease in accounts receivable of $424,408
consisting mainly of 1) a decrease of $318,079 in trade accounts receivable
reflecting a faster collection rate compared to the previous fiscal year end, 2)
a $102,640 decrease in unbilled accounts receivable (current plus noncurrent)
primarily resulting from a $108,630 decrease in reimbursable indirect rate
variances for the current fiscal year, a net $11,273 increase 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 six month period, and 3) a $3,689 decrease in other
8
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 $80,000 as a result of utilizing a
portion of the federal income tax loss carryforward. Fixed assets, net of
accumulated depreciation and amortization decreased $99,377 reflecting
depreciation and amortization of $203,972 reduced by a $57,720 fully amortized
facility improvement write off and disposal during the first six months of
fiscal year 2001 offset by fixed asset purchases of $104,595 (mainly laboratory
equipment and facility improvements) reduced by the $57,720 fully amortized
facility improvement write off.
The decrease in total assets above is partially offset by 1) an increase in
prepaid expenses of $26,341 primarily due to the prepayment of business
liability and life insurance premiums, and 2) an increase in inventories of
$17,330. The balance of the decrease was due to other miscellaneous factors.
Liabilities
In the first six months of operations, total liabilities decreased $671,625 from
$1,757,815 at May 31, 2000 to $1,086,190 at November 30, 2000. This decrease is
primarily attributable to 1) a decrease to borrowings under line-of-credit of
$409,373 reflecting the faster collection of trade accounts receivable, 2) a
decrease in accrued compensation and related costs of $108,605 reflecting the
payment of accrued bonuses from fiscal year 2000 during the first six months of
fiscal year 2001, 3) payments totaling $65,408 on capital leases and notes
payable reducing long-term debt, and 4) a decrease in accounts payable of
$83,841 reflecting the increase in contract activity. The balance of the
decrease was due to other miscellaneous factors.
Stockholders' Equity
In the first six months of operation in fiscal year 2001, stockholders' equity
increased $93,632 primarily due to the Company realizing $119,452 of net income
offset by the $26,401 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
9
proposed products (such as marketing, safety, regulatory, patent, product
liability, supply, competition and other risks).
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual Meeting - October 25, 2000
Election of Directors
Four directors were elected:
For Withheld
--------- --------
J. Thomas August, M.D. 764,344 2,180
Charles C. Francisco 763,410 2,114
Charles F. Gauvin 763,410 2,114
John C. Landon, Ph.D. 763,375 2,209
There were no other directors whose term of office as a director continued after
the meeting.
10
SIGNATURES
----------
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 January 10, 2001 /s/ John C. Landon
-------------------- ------------------
Chairman of the Board,
President and Chief Executive
Officer
DATE January 10, 2001 /s/ Michael P. O'Flaherty
-------------------- -------------------------
Chief Operating Officer and
Secretary
DATE January 10, 2001 /s/ David A. Newcomer
-------------------- ---------------------
Chief Financial Officer
11