-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M0vFTnWrE8ZedD9u/JxutM3mn1MFsCgpSf2k+/+3q2rdifd5nnPa8riLHVRw4/8j hBOohzsHpY2f3sHseMfH6g== 0001047469-97-004908.txt : 19971117 0001047469-97-004908.hdr.sgml : 19971117 ACCESSION NUMBER: 0001047469-97-004908 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENERGY BIOSYSTEMS CORP CENTRAL INDEX KEY: 0000895677 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 043078857 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21130 FILM NUMBER: 97720503 BUSINESS ADDRESS: STREET 1: 4200 RESEARACH FOREST DR CITY: THE WOODLANDS STATE: TX ZIP: 77381 BUSINESS PHONE: 7133646100 10-Q 1 10-Q 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 September 30, 1997 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 (I.R.S. Employer incorporation or organization) Identification No.) 4200 Research Forest Drive The Woodlands, Texas 77381 (address of principal executive offices) (zip code) 281-364-6100 (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 November 4, 1997 there were outstanding 12,218,434 shares of Common Stock, par value $.01 per share, of registrant. ENERGY BIOSYSTEMS CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 INDEX PAGE ---- Statement Regarding Forward-Looking Statements 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements 4 Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 5 Statements of Operations for the Three Months and Nine Months Ended September 30, 1997 and 1996 (Unaudited) 6 Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 (Unaudited) 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 2 STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on 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. The words "anticipate", "believe", "expect", "estimate", "project" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, expected, estimated or projected. These risks and uncertainties include technological uncertainty and risks associated with the commercialization of the Company's technology, the Company's history of operating losses and uncertainty of future profitability, manufacturing risks and uncertainties, uncertainty of market acceptance of the Company's technology, the Company's reliance on environmental regulation, uncertainties as to the protection offered by the Company's patents and proprietary technology, the Company's dependence on collaborations, the Company's need for additional funds, limited marketing experience and dependence on key personnel, government regulation, competition and other risks and uncertainties described in the Company's filings with the Securities and Exchange Commission. For additional discussion of such risks, uncertainties and assumptions ("Cautionary Statements"), see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" included elsewhere in this report and "Item 1. Business - Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 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. 3 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 year ended December 31, 1996. 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. 4 ENERGY BIOSYSTEMS CORPORATION BALANCE SHEETS September 30, December 31, 1997 1996 ------------- ------------ ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 12,533,246 $ 3,106,004 Short term investments -- 5,891,584 Prepaid expenses and other current assets 889,680 767,893 ------------ ------------ Total current assets 13,422,926 9,765,481 Notes receivable -- 6,683 Furniture, equipment and leasehold improvements, net 2,660,191 3,136,635 Intangible and other assets, net 919,618 801,832 ------------ ------------ Total assets $ 17,002,735 $ 13,710,631 ------------ ------------ ------------ ------------ LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 647,381 $ 537,583 Deferred revenue 180,000 193,500 Obligations under capital lease 5,658 11,632 Note payable 299,812 252,443 ------------ ------------ Total current liabilities 1,132,851 995,158 Stockholders' equity: Series A Convertible Preferred Stock, $0.01 par value (liquidation value zero and $24,000,000; 508,800 shares authorized, zero and 480,000 shares issued and outstanding, respectively) -- 23,295,585 Series B Convertible Preferred Stock, $0.01 par value (liquidation value $35,105,000; 760,000 and zero shares authorized, 702,100 and zero shares issued and outstanding, respectively) 34,553,693 -- Common Stock, $0.01 par value (30,000,000 shares authorized, 11,780,704 and 11,497,135 shares issued and outstanding, respectively) 117,807 114,972 Additional paid-in capital 33,144,146 32,018,218 Accumulated deficit (51,945,768) (42,713,302) ------------ ------------ Total stockholders' equity 15,869,884 12,715,473 ------------ ------------ Total liabilities and stockholders' equity $ 17,002,735 $ 13,710,631 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. 5 ENERGY BIOSYSTEMS CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- REVENUES: Sponsored research revenues $ 152,147 $ 437,273 $ 1,140,119 $ 1,318,780 Interest and investment income 200,505 178,194 480,735 654,236 ----------- ----------- ----------- ----------- Total revenues 352,652 615,467 1,620,854 1,973,016 COSTS AND EXPENSES: Research and development 2,352,404 2,108,329 6,870,866 5,963,391 General and administrative 570,152 600,796 1,820,414 1,927,267 ----------- ----------- ----------- ----------- Total costs and expenses 2,922,556 2,709,125 8,691,280 7,890,658 ----------- ----------- ----------- ----------- NET LOSS $(2,569,904) $(2,093,658) $(7,070,426) $(5,917,642) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET LOSS PER COMMON SHARE $ (0.29) $ (0.24) $ (0.81) $ (0.70) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE 11,767,017 11,319,087 11,658,264 11,185,015 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 6 ENERGY BIOSYSTEMS CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(7,070,426) $(5,917,642) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,035,384 795,690 Changes in assets and liabilities: Decrease in trading securities -- 2,946,555 Decrease (increase) in prepaid expenses and other current assets (121,787) 307,100 Increase in intangible and other assets and notes receivable (160,071) (104,486) Increase (decrease) in accounts payable and accrued liabilities 109,798 (141,930) Decrease in deferred revenues (13,500) (850,500) ----------- ----------- Net cash provided by (used in) operating activities (6,220,602) (2,965,213) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (509,972) (637,736) Net sale (purchase) of investments 5,891,584 1,078,934 ----------- ----------- Net cash provided by (used in) investing activities 5,381,612 441,198 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment on capital lease obligations (5,974) (5,369) Payment on notes payable (277,042) (326,468) Issuance of notes payable 324,411 76,200 Issuance of stock, net 10,224,837 364,932 ----------- ----------- Net cash provided by financing activities 10,266,232 109,295 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,427,242 (2,414,720) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,106,004 6,172,400 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,533,246 $ 3,757,680 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 7 ENERGY BIOSYSTEMS CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997 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 and investment 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, 1996. 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 and the Series B Convertible Preferred Stock issued in February and March 1997, 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. Pending Accounting Change In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting No. 128, "Earnings Per Share." Statement 128 simplifies the standards for computing earnings per share previously found in APB Opinion No. 15, EARNINGS PER SHARE, and makes them comparable to international earnings per share standards. The Statement also retroactively revises the presentation of earnings per share in the financial statements. The Company will adopt this Standard for the year ended December 31, 1997 and management believes that this statement will have no material impact on its financial statements. 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 and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. SERIES B CONVERTIBLE PREFERRED STOCK In February and March 1997, the Company sold an aggregate of 224,100 shares of Series B Convertible Preferred Stock ("Series B Preferred Stock") at $50.00 per share in a private placement. The net proceeds from the offering were approximately $10.2 million. The 8 ENERGY BIOSYSTEMS CORPORATION NOTES TO FINANCIAL STATEMENTS - (Continued) placement agents for the Series B Preferred Stock received warrants to purchase an aggregate of 20,319 shares of Series B Preferred Stock at an exercise price of $50.00 per share of Series B Preferred Stock in addition to customary commissions. The warrants have been recorded at an estimated fair value of $466,000, which was computed using the Black-Scholes option pricing model and the following assumptions: risk free interest rate of 6.51 percent; expected dividend yield of zero; expected life of three years, and an expected volatility of 68 percent. Dividends on the Series B Preferred Stock are cumulative from February 27, 1997 and payable semi-annually commencing May 1, 1997, at an annual rate equal to (i) $4.00 per share of Series B Preferred Stock to the extent the dividend is paid in cash and (ii) $4.50 per share of Series B Preferred Stock to the extent the dividend is paid in common stock. Dividends on shares of Series B Preferred Stock are payable in cash or common stock of the Company, or a combination thereof, at the Company's option. On May 1, 1997, the Company paid a dividend of $552,904 on the Series B Preferred Stock by issuing 107,076 shares of common stock. Shares of Series B Preferred Stock are convertible into shares of common stock at a conversion price equal to $7.25 per share, subject to certain adjustments. The Series B Preferred Stock may be redeemed by the Company under certain circumstances after February 26, 1999 and is required to be redeemed, subject to certain limitations, on February 26, 2002 at a redemption price of $50.00 per share, plus accrued and unpaid dividends. It is the Company's intent, however, to redeem the Series B Preferred Stock for common stock. Accordingly, the Series B Preferred Stock is included in stockholders' equity. Concurrently with the private placement, the Company conducted an exchange offering and consent solicitation with respect to its outstanding Series A Convertible Preferred Stock ("Series A Preferred Stock"), pursuant to which the Company offered to exchange one share of Series B Preferred Stock for each of its 480,000 outstanding shares of Series A Preferred Stock and requested the holders of its Series A Preferred Stock consent to the ranking of the Series B Preferred Stock on a parity with the Series A Preferred Stock with respect to the payment of dividends and liquidation preference. The Company did not receive any cash proceeds from the exchange offering. Of the 480,000 shares of Series A Preferred Stock outstanding, 478,000 shares were exchanged for the same number of shares of Series B Preferred Stock. The carrying amount of the Series B 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 the Series B Preferred Stock on February 26, 2002. NOTE 3. SERIES A CONVERTIBLE PREFERRED STOCK In October 1994, the Company sold 480,000 shares of Series A 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 Series A Preferred Stock received warrants to purchase an aggregate of 28,800 shares of Series A Preferred Stock at an exercise price of $50.00 per share of Series A Preferred Stock in addition to customary commissions. 9 ENERGY BIOSYSTEMS CORPORATION NOTES TO FINANCIAL STATEMENTS - (Continued) Dividends on the Series A Preferred Stock are cumulative from October 27, 1994 and payable semi-annually commencing May 1, 1995, at an annual rate equal to (i) $4.00 per share to the extent the dividend is paid in cash and (ii) $4.50 per share to the extent the dividend is paid in common stock. During the first nine months of 1997, the Company paid dividends of $691,575 on the Series A Preferred Stock by issuing 98,519 shares of common stock. All but 2,000 shares of the 480,000 shares of Series A Preferred Stock outstanding were exchanged for shares of Series B Preferred Stock in the exchange offering. See Note 2. Shares of Series A 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 certain adjustments. The Series A Preferred Stock may be redeemed by the Company under certain circumstances after November 7, 1996 and is required to be redeemed on November 7, 1999 at a redemption price of $50.00 per share, plus accrued and unpaid dividends. In September 1997, the remaining 2,000 shares of Series A Preferred Stock not exchanged for Series B Preferred Stock were converted into 12,581 shares of common stock. 10 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 and investment 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 September 30, 1997 the Company's accumulated deficit was $51,945,768. RESULTS OF OPERATIONS The Company had total revenues for the nine months ended September 30, 1997 and 1996 of $1,620,854 and $1,973,016, respectively. The decrease in total revenues was attributable to decreases in sponsored research revenues and in interest and investment income. The Company had sponsored research revenues of $1,140,119 during the first nine months of 1997 as compared to $1,318,780 during the first nine months of 1996. The decrease of $178,661 in sponsored research revenues resulted from a decrease in revenues recognized under the Company's research collaboration agreement with Petrolite Corporation (now Baker Petrolite, a subsidiary of Baker-Hughes Corporation, "Petrolite") to $13,500 in the nine months ended September 30, 1997 from $850,500 during the corresponding period in 1996, offset in part by (i) an increase in sponsored research revenue from an agreement with The Carbide/Graphite Group, Inc. ("Carbide/Graphite") to $250,000 during the first nine months of 1997 compared to $150,000 during the first nine months of 1996 and (ii) an increase in the sponsored research revenues received from a National Institute of Standards and Technology ("NIST") grant to $876,619 for the nine months ended September 30, 1997 from $318,280 for the nine months ended September 30, 11 1996. The sponsored research revenues recognized under the Petrolite agreement in 1996 and 1997 represent the recognition of the remaining deferred revenues attributable to the research and development payments made to the Company by Petrolite under the agreement. Petrolite made research and development payments aggregating $5,400,000 under the agreement beginning on April 1, 1992 and ending with a final payment in March 1994. The revenues associated with such payments were recognized ratably over the period in which the Company incurred research and development expenses under the agreement. The Company had interest and investment income of $480,735 in the first nine months of 1997 as compared to $654,236 in the first nine months of 1996. The decrease of $173,501 in interest and investment income resulted primarily because the Company's average balances of cash, cash equivalents and short-term investments during the first quarter of 1997, prior to the completion of its private placement of Series B Convertible Preferred Stock ("Series B Preferred Stock"), were less than those during the corresponding period of 1996. The Company had total revenues for the three months ended September 30, 1997 and 1996 of $352,652 and $615,467, respectively. The Company had sponsored research revenues of $152,147 during the third quarter of 1997 as compared to $437,273 during the third quarter of 1997. The decrease in sponsored research revenues of $285,126 for the third quarter of 1997 compared to the third quarter of 1996 was attributable to the decrease in sponsored research revenues recognized under the Petrolite agreement. Interest and investment income increased by $22,311 for the three months ended September 30, 1997 compared to the third quarter of 1996 as a result of an increase in interest rates. The Company had research and development expenses for the three months ended September 30, 1997 and 1996 of $2,352,404 and $2,108,329, respectively, and for the nine months ended September 30, 1997 and 1996 of $6,870,866 and $5,963,391, respectively. The increase in research and development expenses of $244,075 and $907,475, respectively for the three and nine months ended September 30, 1997 as compared to the corresponding prior year periods resulted primarily from the addition of seven research and development personnel, reimbursement of the direct out-of-pocket costs incurred by Petrolite for their employees at the pilot plant and the hiring of additional consultants. The Company expects its research and development expenses to increase during the remainder of 1997, reflecting increased expenditures related to hiring additional personnel. The Company's research and development expenses will increase substantially if the Company elects to make the $9,000,000 payment to exercise its option to reduce the percentage of site license fees and adjusted gross profit payable under its agreement with Petrolite because the entire amount of such payment would be recorded as a research and development expense. The Company does not presently intend to exercise the Petrolite option, however, until it has raised additional funds or received additional capital. The Company had general and administrative expenses for the three months ended September 30, 1997 and 1996 of $570,152 and $600,796, respectively, and for the nine months ended September 30, 1997 and 1996 of $1,820,414 and $1,927,267, respectively. The decrease of $30,644 for the three months ended September 30, 1997 as compared to the third quarter of 1996 resulted from a decrease of two personnel. The decrease of $106,853 for the nine months ended September 30, 1997 as compared to the corresponding prior year period resulted primarily from a decrease in consulting fees for marketing in Asia, travel expenses, fewer personnel and a decrease in insurance expense. The Company expects a slight increase in its general and 12 administrative expenses during the remainder of 1997 in support of its expanded research activities and corporate development activities. LIQUIDITY AND CAPITAL RESOURCES In February and March 1997, the Company sold an aggregate of 224,100 shares of Series B Convertible Preferred Stock in a private placement, resulting in net cash proceeds of approximately $10.2 million. Concurrently with the private placement, the Company conducted an exchange offering and consent solicitation pursuant to which 478,000 shares of its Series A Convertible Preferred Stock ("Series A Preferred Stock") were exchanged for the same number of shares of Series B Preferred Stock. Dividends on the Series B Preferred Stock are cumulative from the date of the initial closing, February 27, 1997, and are payable in cash or common stock of the Company, or a combination thereof, at an annual rate equal to (i) $4.00 per share to the extent the dividend is paid in cash and (ii) $4.50 per share to the extent the dividend is paid in common stock. On May 1, 1997, the Company paid a dividend of $552,904 on the Series B Preferred Stock by issuing 107,076 shares of common stock. In October 1994, the Company sold 480,000 shares of Series A Preferred Stock in a private placement, resulting in net cash proceeds of approximately $22.2 million. During the first nine months of 1997, the Company paid dividends of $691,575 on the Series A Preferred Stock by issuing 98,519 shares of common stock. For the nine months ended September 30, 1997, the Company used $6,220,602 of net cash in operating activities, incurred $509,972 in capital expenditures and received $10,266,232 from financing activities. At September 30, 1997, the Company had cash, cash equivalents and short term investments totaling $12,533,246 and working capital of $12,290,075. The Company intends to spend approximately $320,000 during the remainder of 1997 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 1997 requiring the Company to spend approximately $21,000 under research and development agreements. In addition, the Company is subject to cost sharing arrangements under various collaboration agreements. The Company also expects its general and administrative expenses to increase slightly during the remainder of 1997 in support of its research and corporate development activities. 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 Petrolite, the Exploration and Production Technology Division of Texaco, Inc., Total Raffinage Distribution S.A. ("Total"), The M. W. Kellogg Company, Koch Refining Company and Carbide/Graphite, among others, as more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Based upon the progress of its research and development efforts in 1997 and its current expectations regarding the continued development of its biocatalytic desulfurization ("BDS") technology, the Company expects to commence contract negotiations with Petro Star Inc. ("Petro Star") during the first half of 1998 regarding an initial commercial application of its BDS 13 technology at Petro Star's Valdez, Alaska refinery. In addition, the Company is continuing to develop its BDS technology in collaboration with Total, and is continuing to conduct process simulations at the Company's pilot plant using deeply desulfurized diesel fuel provided by Total. The Company's objective is to commence contract negotiations with Total regarding the installation of a pilot BDS unit at Total's European Center for Research and Technology and the concurrent installation of a commercial BDS unit at one of Total's refineries, following the achievement of results satisfactory to Total from pilot plant process simulations. The Company's ability to reach agreements with Petro Star, Total or other parties with respect to commercial applications of its BDS technology, and its ability to commercialize such technology generally, will depend upon its ability to achieve additional improvements in the productivity of the biocatalyst (e.g., specific activity, production and longevity) and process engineering (e.g., bioreactor design, separations technology and byproduct disposition), and is subject to numerous risks and uncertainties. Although the Company has made substantial progress to date in improving the productivity of the biocatalyst and the process engineering used in its pilot BDS unit, no assurance can be made that the Company will be able to achieve the improvements necessary for its BDS technology to become commercially viable or to reach agreements with respect to the commercial application of its technology within the time anticipated or at all. See "Statement Regarding Forward-Looking Statements". The Company has experienced negative cash flow from operations since its inception and has funded its activities to date primarily from equity financings and sponsored research revenues. The Company will continue to require substantial funds to continue its research and development activities and to market, sell and commercialize its technology. The Company believes that its available cash, investments and interest income will be adequate to satisfy its funding operations through year-end 1998. The Company will need to raise substantial additional capital to fund its operations thereafter. The Company's capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by companies developing and commercializing new technologies; the progress of the Company's research and development activities; 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; the establishment of collaborative relationships; the success of the Company's sales and marketing programs; the cost of filing, prosecuting and defending and enforcing patents and intellectual property rights; and other changes in economic, regulatory or competitive conditions in the Company's planned business. Estimates about the adequacy of funding for the Company's activities are based upon certain assumptions, including assumptions that the research and development programs relating to the Company's technology can be conducted at projected costs and that progress towards the commercialization of its technology will be timely and successful. There can be no assurance that changes in the Company's research and development plans, acquisitions or other events will not result in accelerated or unexpected expenditures. To satisfy its capital requirements, the Company may seek additional funding through public or private financings, including equity financings, and through collaborative arrangements. There can be no assurance that any such funding will be available to the Company on favorable terms or at all. If adequate funds are not available when needed, the Company may be required to delay, scale back or eliminate some or all of its research and product development programs. If the Company is successful in obtaining additional financing, the terms of such financing may have the effect of diluting or adversely affecting the holdings or the rights of the holders of the Company's Common Stock. 14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 11.1 Statement regarding Computation of Per Share Earnings. 27.1 Financial Data Schedule. b. Reports on Form 8-K None. 15 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 By: /s/ Ramon Lopez ------------------------------------ Ramon Lopez, Chairman of the Board Date: November 12, 1997 By: /s/ Paul G. Brown III ------------------------------------ Paul G. Brown III Vice President, Finance and Administration Date: November 12, 1997 16 EX-11.1 2 EXHIBIT 11.1 ENERGY BIOSYSTEMS CORPORATION EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS The following schedules reflect the information used in calculating the number of shares in the computation of net loss per share for each of the periods set forth in the Statements of Operations. 17 ENERGY BIOSYSTEMS CORPORATION COMPUTATION OF PER SHARE EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 WEIGHTED AVERAGE SHARES OUTSTANDING: TOTAL # DAYS SHARES OUTSTANDING - --------------------------------------- 11,497,135 x 15 = 172,457,025 11,502,135 x 1 = 11,502,135 11,502,235 x 7 = 80,515,645 11,502,395 x 18 = 207,043,110 11,505,395 x 8 = 92,043,160 11,506,053 x 13 = 149,578,689 11,507,163 x 6 = 69,042,978 11,605,377 x 52 = 603,479,604 11,712,758 x 63 = 737,903,754 11,763,593 x 20 = 235,271,860 11,764,343 x 36 = 423,516,348 11,765,343 x 8 = 94,122,744 11,777,924 x 24 = 282,670,176 11,778,204 x 1 = 11,778,204 11,780,704 x 1 = 11,780,704 --- ------------- 273 = 3,182,706,136 3,182,706,136 / 273 = 11,658,264 ---------- ---------- LOSS PER SHARE: Net Loss plus dividend accrual plus accretion of offering costs ($9,447,419) = ($0.81) - -------------------------------- ------------- ---------- Weighted Avg. Shares 11,658,264 ---------- 18 ENERGY BIOSYSTEMS CORPORATION COMPUTATION OF PER SHARE EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 WEIGHTED AVERAGE SHARES OUTSTANDING: TOTAL # DAYS SHARES OUTSTANDING - --------------------------------------- 11,712,758 x 2 = 23,425,516 11,763,593 x 20 = 235,271,860 11,764,343 x 36 = 423,516,348 11,765,343 x 8 = 94,122,744 11,777,924 x 24 = 282,670,176 11,778,204 x 1 = 11,778,204 11,780,704 x 1 = 11,780,704 --- ------------- 92 1,082,565,552 / 92 = 11,767,017 ---------- ---------- LOSS PER SHARE: Net Loss plus dividend accrual plus accretion of offering costs ($3,449,012) = ($0.29) - -------------------------------- ------------- ---------- Weighted Avg. Shares 11,767,017 ---------- 19 ENERGY BIOSYSTEMS CORPORATION COMPUTATION OF PER SHARE EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 WEIGHTED AVERAGE SHARES OUTSTANDING: TOTAL # DAYS SHARES OUTSTANDING - --------------------------------------- 10,584,268 x 23 = 243,438,164 11,107,568 x 14 = 155,505,952 11,139,268 x 27 = 300,760,236 11,140,768 x 8 = 89,126,144 11,142,868 x 55 = 612,857,740 11,301,975 x 28 = 316,455,300 11,302,025 x 16 = 180,832,400 11,303,525 x 7 = 79,124,675 11,309,295 x 1 = 11,309,295 11,309,355 x 5 = 56,546,775 11.310,855 x 7 = 79,175,985 11,311,955 x 5 = 56,559,775 11,316,955 x 4 = 45,267,820 11,318,210 x 28 = 316,909,880 11,320,010 x 4 = 45,280,040 11,320,210 x 23 = 260,364,830 11,325,210 x 19 = 215,178,990 --- ------------- 274 3,064,694,001 11,185,015 --- ------------- ---------- --- ------------- ---------- LOSS PER SHARE: Net Loss plus dividend accrual plus accretion of offering costs ($7,780,444) = ($0.70) - -------------------------------- ------------- ---------- Weighted Avg. Shares 11,185,015 ---------- 20 ENERGY BIOSYSTEMS CORPORATION COMPUTATION OF PER SHARE EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 WEIGHTED AVERAGE SHARES OUTSTANDING: TOTAL # DAYS SHARES OUTSTANDING - --------------------------------------- 11,309,355 x 2 = 22,618,710 11,310,855 x 7 = 79,175,985 11,311,955 x 5 = 56,559,775 11,316,955 x 4 = 45,267,820 11,318,210 x 28 = 316,909,880 11,320,010 x 4 = 45,280,040 11,320,210 x 23 = 260,364,830 11,325,210 x 19 = 215,178,990 --- ------------- 92 / 1,041,356,030 = 11,319,087 --- ------------- ---------- --- ------------- ---------- LOSS PER SHARE: Net Loss plus dividend accrual plus accretion of offering costs ($2,716,413) = ($0.24) - -------------------------------- ------------- ---------- Weighted Avg. Shares 11,319,087 ---------- 21 EX-27.1 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 SEP-30-1997 12,533,246 0 446,230 0 18,895 13,422,926 6,660,695 4,000,504 17,002,735 1,132,851 0 0 34,553,693 117,801 33,144,152 17,002,735 0 1,620,854 0 0 8,691,280 0 0 (7,070,426) 0 (7,070,426) 0 0 0 (7,070,426) (0.81) 0
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