-----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, Vct1j6vMPTZAS6WKF7ZbcsuzYUL3eGZ41v1KPyiqwYVOUnX5WWZuzD8FT7HGa+ig xYiq6Q6BUa2aN3pg9aleJA== 0001047469-98-031427.txt : 19980817 0001047469-98-031427.hdr.sgml : 19980817 ACCESSION NUMBER: 0001047469-98-031427 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98688260 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 June 30, 1998 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 August 11, 1998, there were outstanding 13,011,833 shares of Common Stock, par value $.01 per share, of the registrant. ENERGY BIOSYSTEMS CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 INDEX Page ---- Factors Affecting Forward-Looking Statements 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements 4 Balance Sheets as of June 30, 1998 (Unaudited) and December 31, 1997 5 Statements of Operations for the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) 6 Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997 (Unaudited) 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 10 Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15
2 FACTORS AFFECTING 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, 1997. 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, 1997. 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 June 30, December 31, 1998 1997 ----------- ------------ (Unaudited) ASSETS Current Assets: Cash and cash equivalents $6,222,870 $ 9,661,310 Short term investments - 693,279 Prepaid expenses and other current assets 412,167 1,013,872 ---------- ----------- Total current assets 6,635,037 11,368,461 Furniture, equipment and leasehold improvements, net 2,114,225 2,624,332 Intangible and other assets, net 1,082,983 972,266 ---------- ----------- Total assets $9,832,245 $14,965,059 ---------- ----------- ---------- ----------- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 301,802 $ 864,674 Deferred revenue 380,000 180,000 Obligations under capital lease - 3,556 Note payable 61,612 218,606 ------------ ----------- Total current liabilities 743,414 1,266,836 Stockholders' equity: Series B Convertible Preferred Stock, $0.01 par value (liquidation value $35,105,000; 760,000 shares authorized, 698,100 and 702,100 shares issued and outstanding, respectively) 33,842,599 33,853,380 Common Stock, $0.01 par value (30,000,000 shares authorized, 12,995,112 and 12,251,434 shares issued and outstanding, respectively) 129,951 122,514 Additional paid-in capital 36,952,326 34,926,594 Accumulated deficit (61,836,045) (55,204,265) ------------ ----------- Total stockholders' equity 9,088,831 13,698,223 ------------ ----------- Total liabilities and stockholders' equity $ 9,832,245 $14,965,059 ------------ ----------- ------------ -----------
The accompanying notes are an integral part of these financial statements. 5 ENERGY BIOSYSTEMS CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- REVENUES: Sponsored research revenues $ 88,474 $ 536,520 $ 257,067 $ 987,972 Interest and investment income 64,795 151,316 158,508 280,230 ----------- ----------- ----------- ----------- Total revenues 153,269 687,836 415,575 1,268,202 COSTS AND EXPENSES: Research and development 1,888,038 2,343,748 4,412,232 4,518,462 General and administrative 505,954 647,798 1,052,698 1,250,262 ----------- ----------- ----------- ----------- Total costs and expenses 2,393,992 2,991,546 5,464,930 5,768,724 ----------- ----------- ----------- ----------- NET LOSS $(2,240,723) $(2,303,710) $(5,049,355) $(4,500,522) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.24) $ (0.27) $ (0.53) $ (0.52) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE 12,739,286 11,677,358 12,496,708 11,602,987 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 6 ENERGY BIOSYSTEMS CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, --------------------------- 1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(5,049,355) $(4,500,522) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 704,111 682,602 Issuance of warrants 404,500 Changes in assets and liabilities: Decrease in prepaid expenses and other current assets 601,706 73,406 Increase in intangible and other assets and notes receivable (144,179) (129,457) Decrease in accounts payable and accrued liabilities (562,872) (163,643) Increase (decrease) in deferred revenues 200,000 (13,500) ------------ ------------ Net cash used in operating activities (3,846,089) (4,051,114) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (160,542) (271,432) Net sale of investments 693,279 5,891,584 ------------ ------------ Net cash provided by investing activities 532,737 5,620,152 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payment on capital lease obligations (3,556) (3,945) Payments on notes payable, net (156,995) (203,400) Issuance of stock, net 35,463 10,201,991 ------------ ------------ Net cash provided by (used in) financing activities (125,088) 9,994,646 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,438,440) 11,563,684 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,661,310 3,106,004 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,222,870 $14,669,688 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. 7 ENERGY BIOSYSTEMS CORPORATION NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 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 resources to research and development. To date, all of the Company's revenues resulted from sponsored research payments from collaborative agreements and interest and investment income. The Company has incurred cumulative losses since inception and expects to incur substantial losses for at least the next several years, due primarily to its research and development activities and 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. 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, 1997. 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 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 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 adopted this Standard for the year ended December 31, 1997 and management believes that this statement has 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 placement agent for the Series B Preferred Stock received warrants to purchase an aggregate of 8 ENERGY BIOSYSTEMS CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 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. 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. In April 1998, 4,000 shares of the Series B Preferred Stock were converted to 27,586 shares of common 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. 9 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 its research and development activities and 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 June 30, 1998, the Company's accumulated deficit was $61,836,045. RESULTS OF OPERATIONS The Company had total revenues for the six months ended June 30, 1998 and 1997 of $415,575 and $1,268,2020, respectively. The decrease in total revenues was attributable to decreases in sponsored research revenues and interest and investment income. The Company had sponsored research revenues of $257,067 during the first six months of 1998 as compared to $987,972 during the first six months of 1997. The decrease of $730,905 in sponsored research revenues resulted primarily from the decrease in sponsored research revenues from a National Institute of Standards and Technology ("NIST") grant to $55,934 in the first six months of 1998 compared to $724,472 in the first six months of 1997 and the completion in 1997 of sponsored research under a collaboration agreement with The Carbide/Graphite Group, Inc. (Carbide/Graphite") under which the Company received $250,000 in sponsored research revenue in the first six months of 1997, offset in part by sponsored research revenues of $201,133 received from a Department of Energy ("DOE") grant in the first six months of 1998. The Company had interest and investment income of $158,508 for the first six months of 1998 compared to $280,230 for the first six months of 1997. The decrease of $121,722 in interest and investment income resulted primarily from a decrease in the available cash from which interest and other investment income are generated. The Company had total revenues for the three months ended June 30, 1998 and 1997 of $153,269 and $687,836, 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 $88,474 during the second quarter of 1998 as compared to $536,520 during the second quarter of 1997. The decrease of $448,046 in sponsored research revenues resulted from the completion of the NIST grant in the first quarter of 1998 and the completion of the sponsored research under the collaboration agreement with Carbide/Graphite Group in the final quarter of 1997, which decrease was, however, offset in part by sponsored research revenue received under a DOE grant. The Company had interest and investment income of $64,795 in the second quarter of 1998 as compared to $151,316 in the second quarter of 1997. The decrease of $86,521 in interest and investment income resulted primarily because the Company's average balances of 10 cash, cash equivalents and short-term investments during the second quarter of 1998 were less than those during the corresponding period of 1997. The Company had research and development expenses for the three months ended June 30, 1998 and 1997 of $1,888,038 and $2,343,748, respectively, and for the six months ended June 30, 1998 and 1997 of $4,412,232 and $4,518,462, respectively. The decrease in research and development expenses of $455,710 and $106,230, respectively, for the three and six months ended June 30, 1998 as compared to the corresponding prior year periods resulted primarily from a reduction in research and development personnel, offset in part by a charge to research and development expense in the first quarter of 1998 for warrants issued to Petro Star in the amount of $404,500. The Company expects its research and development expenses to remain below 1997 levels for the remainder of 1998, reflecting a reduction in the workforce at the end of the first quarter of 1998. The Company had general and administrative expenses for the three months ended June 30, 1998 and 1997 of $505,954 and $647,798, respectively, and for the six months ended June 30, 1998 and 1997 of $1,052,698 and $1,250,262, respectively. The decrease of $141,844 and $197,564 for the three and six months ended June 30, 1998, respectively, as compared to the corresponding periods of 1997 resulted from the reduction of the general and administrative personnel at the end of the first quarter of 1998 and the resignation of the company's chief executive officer in October 1997. The Company expects a slight decrease from 1997 levels in its general and administrative expenses during the remainder of 1998, reflecting a reduction in administrative personnel at the end of the first quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES In February and March 1997, the Company sold an aggregate of 224,100 shares of Series B 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 were exchanged for the same number of shares of Series B Preferred Stock. In April 1998, 4,000 shares of the Series B Preferred Stock were converted to 27,586 shares of common 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. For the three months ended June 30, 1998, the Company used $3,846,089 of net cash in operating activities, incurred $160,542 in capital expenditures and used $125,088 in financing activities. At June 30, 1998, the Company had cash and cash equivalents totaling $6,222,870 and working capital of $5,891,623. The Company intends to spend approximately $340,000 during the remainder of 1998 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 1998 requiring the Company to spend approximately $25,000 under research and development agreements. In addition, the Company is subject to cost sharing arrangements under various collaboration agreements. 11 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 and Koch Refining Company, among others, as more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. In March 1998, the Company entered into a site license agreement with Petro Star regarding the design and installation of a biocatalytic desulfurization ("BDS") unit at Petro Star's refinery in Valdez, Alaska. The agreement involves several stages of work, the first of which, involving the completion of scoping economics, is currently underway. In addition, the agreement provides the Company with certain rights to conduct development work and demonstrations of its BDS technology at Petro Star's refinery. The agreement calls for the payment of staged site license fees and royalties to the Company, including a $200,000 initial site license fee which was paid upon execution of the agreement and has been recorded as deferred revenue. The revenue will be recognized ratably over the completion of the initial phase of the agreement. As is customary in such agreements in the petroleum refining industry, the agreement provides certain approval and termination rights to Petro Star at the completion of each stage prior to commercialization. In connection with the execution of the agreement, the Company issued a four-year warrant entitling Petro Star to purchase 200,000 shares of its common stock at an exercise price of $3.11 per share. The warrants have been recorded at an estimated fair value of $404,500, which was computed using the Black-Scholes option pricing model and the following assumptions: risk free interest rate of 5.37 percent; expected dividend yield of zero; expected life of four years, and expected volatility of 75.43 percent. 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. In July 1998, Total informed the Company of its intent to build a BDS pilot plant in one European industrial facility in 1999. Pilot plant studies are important milestones in implementing new technologies. Notable expense is involved in gaining information on commercial design parameters as well as hands-on operations experience. In contemplation of Total's plans, the Company and Total have extended the term of their collaboration agreement and are evaluating the conditions under which the pilot plant would be implemented. Construction and operation of the BDS pilot plant is the first step in the process of commercialization. Successful completion of the pilot test program will lead directly to detailed design, engineering and construction of the commercial process. 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 "Factors Affecting Forward-Looking Statements". 12 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 fund its operations through early 1999. 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. YEAR 2000 ISSUES Year 2000 issues result from the inability of certain computer programs or computerized equipment to accurately calculate, store or use date subsequent to December 31, 1999. The erroneous date can be interpreted in a number of different ways; typically the year 2000 is represented as the year 1900. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business transactions. The Company is in the process of assessing all financial and operational systems and equipment to ensure year 2000 compliance, and plans to complete the assessment by December 31, 1998. Based on reviews to date and preliminary information, the Company does not anticipate that it will incur any significant costs relating to the assessment and remediation of year 2000 issues. The Company believes that the potential impact, if any, of its systems not being year 2000 compliant should not impact the Company's ability to continue its research and development activities. However, there can be no assurance that the Company, its business partners, vendors or customers will successfully be able to identify and remedy all potential year 2000 problems or that a system failure resulting from a failure to identify any such problems would not have a material adverse effect on the Company. 13 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Proposal 1: The Election of Directors At the Company's 1998 Annual Meeting of Stockholders held on June 2, 1998, the following individuals were elected as directors to hold office until the next annual meeting of the stockholders of the Company or until their successors have been duly elected and qualified. FOR WITHHELD Ramon Lopez 14,456,136 42,640 R. James Comeaux 14,456,336 42,440 Edward B. Lurier 14,456,536 42,240 Thomas E. Messmore 14,456,536 42,240 Daniel J. Monticello, Ph.D. 14,456,536 42,240 William E. Nasser 14,456,336 42,440 John S. Patton 14,456,136 42,640 William D. Young 14,456,336 42,440
Proposal 2: The approval of the appointment of Arthur Andersen LLP as the Company's independent public accountants for 1998. For 14,457,553 Against 11,580 Abstain 29,643 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. 14 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/ William E. Nasser ------------------------------------ William E. Nasser Chairman of the Board, Chief Executive Officer and President Date: August 11, 1998 By: /s/ Paul G. Brown III ------------------------------------ Paul G. Brown III Vice President, Finance and Administration Date: August 11, 1998 15 EX-11.1 2 EXHIBIT 11.1 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. BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION THREE MONTHS ENDED JUNE 30, 1998 Weighted Average Shares Outstanding: TOTAL # DAYS SHARES OUTSTANDING 12,251,434 x 29 = 355,291,586 12,281,591 x 1 = 12,281,591 12,970,112 x 40 = 518,804,480 12,995,112 x 21 = 272,897,352 ----- ------------- 91 = 1,159,275,009 ----- ------------- ----- ------------- 1,159,275,009 / 91 = 12,739,286 ---------- ---------- Loss Per Share: Net Loss plus dividend accrual plus accretion of offering costs $ (3,033,285) = $ (0.24) - --------------------------------- ------------- ---------- Weighted Avg. Shares 12,739,286 ----------
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION THREE MONTHS ENDED JUNE 30, 1997 Weighted Average Shares Outstanding: TOTAL # DAYS SHARES OUTSTANDING 11,605,377 x 30 = 348,161,310 11,712,758 x 61 = 714,478,238 ----- ------------- 91 1,062,639,548 ----- ------------- ----- ------------- 1,062,639,548 /91 = 11,677,358 ---------- ---------- Loss Per Share: Net Loss plus dividend accrual plus accretion of offering costs $ (3,181,016) = $ (0.27) - --------------------------------- ------------- ---------- Weighted Avg. Shares 11,677,358 ----------
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION SIX MONTHS ENDED JUNE 30, 1998 Weighted Average Shares Outstanding: TOTAL # DAYS SHARES OUTSTANDING 12,251,434 x 119 = 1,457,920,646 12,281,591 x 1 = 12,281,591 12,970,112 x 40 = 518,804,480 12,995,112 x 21 = 272,897,352 ----- ------------- 181 2,261,904,069 ----- ------------- ----- ------------- 2,261,904,069 /181 = 12,496,708 ---------- ---------- Loss Per Share: Net Loss plus dividend accrual plus accretion of offering costs $ (6,631,780) = $ (0.53) - --------------------------------- -------------- ---------- Weighted Avg. Shares 12,496,708 ----------
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION SIX MONTHS ENDED JUNE 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 61 = 714,478,238 ----- ------------- 181 2,100,140,584 ----- ------------- ----- ------------- 2,100,140,584 /181 = 11,602,987 ---------- ---------- Loss Per Share: Net Loss plus dividend accrual plus accretion of offering costs $ (5,997,658) = $ (0.52) - --------------------------------- ------------- ---------- Weighted Avg. Shares 11,602,987 ----------
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 THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 6,222,870 0 261,209 0 29,624 6,635,037 6,993,282 4,879,057 9,832,245 743,414 0 0 33,842,599 129,951 36,952,326 9,832,245 0 415,575 0 0 5,464,930 0 0 (5,049,355) 0 (5,049,355) 0 0 0 (5,049,355) (0.53) (0.53)
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