UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended September 30, 1995
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: 0-10379
INTERFERON SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2313648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
783 Jersey Avenue, New Brunswick, New Jersey 08901
(Address of principal executive offices) (Zip code)
(908) 249 - 3250
(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 [ ]
Number of shares outstanding of each of issuer's classes of common
stock as of November 3, 1995:
Common Stock 34,448,768 shares
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INTERFERON SCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page No.
Part I. Financial Information:
Consolidated Condensed Balance Sheets--September 30, 1995
and December 31, 1994 1
Consolidated Condensed Statements of Operations--Three
Months and Nine Months Ended September 30, 1995 and 1994 2
Consolidated Condensed Statement of Changes in
Stockholders' Equity--Nine Months Ended September 30, 1995 3
Consolidated Condensed Statements of Cash Flows--Nine
Months Ended September 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial Statements 5-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Qualification Relating to Financial Information 13
Part II. Other Information 14
Signatures 15
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PART I. FINANCIAL INFORMATION
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1995 1994
ASSETS (Unaudited) *
Current assets
Cash and cash equivalents $ 9,216,173 $ 330,617
Accounts and other receivables 207,983 35,546
Inventories 957,247 1,029,158
Consignment inventory 220,410
Receivables from affiliated
companies, net 20,001 20,001
Prepaid expenses and other
current assets 57,507 55,221
Total current asset 10,458,911 1,690,953
Property, plant and equipment, at cost 11,826,069 11,826,069
Less accumulated depreciation
and amortization (6,569,679) (6,013,839)
5,256,390 5,812,230
Intangible assets, net of amortization 334,534 355,019
Other assets 323,900 323,900
Total assets $ 16,373,735 $ 8,182,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ $ 409,275
Accounts payable and accrued expenses 1,425,121 1,629,025
Amount due NPDC 60,526 134,347
Amount due Purdue for repurchase of
common stock 300,000
Total current liabilities 1,485,647 2,472,647
Common stock subject to repurchase
commitment (0 and 682,494 shares) 2,729,976
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.01 per share; authorized
-5,000,000 shares; none issued and outstanding
Common stock, par value $.01 per share; authorized
-55,000,000 and 30,000,000 shares; issued and outstanding
-34,448,768 and 19,509,291 shares 344,488 195,093
Capital in excess of par value 82,641,859 65,572,243
Accumulated deficit (68,098,259) (62,787,857)
Total stockholders' equity 14,888,088 2,979,479
Total liabilities and stockholders'
equity $ 16,373,735 $ 8,182,102
*The condensed balance sheet as of December 31, 1994 has been
summarized from the Company's audited balance sheet as of that
date.
The accompanying notes are an integral part of these consolidated
condensed financial statements.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1995 1994
Revenues
Sales
Alferon N Injection $ 189,536 $ 622,665
Research products and
other revenues 22,039 97,190
Total revenues 211,575 719,855
Costs and expenses
Cost of goods sold and excess/
idle production costs 678,542 1,045,017
Research and development (net of
$45,498 and $37,500 for the three
months and $136,494 and $112,500 for
the nine months ended September 30,
1995 and 1994, respectively, of
rental income received from NPDC) 963,555 1,291,447
General and administrative
(includes $349,415 and $287,205
for the three months and $928,593
and $1,049,471 for the nine months
ended September 30, 1995 and 1994,
respectively, of charges from NPDC
for management fees and
reimbursements of expenses) 552,218 2,620,496
Total costs and expenses 2,194,315 4,956,960
Loss from operations (1,982,740) (4,237,105)
Interest and other income 58,625 23,202
Net loss on sales of
marketable securities (121,445)
Interest expense (includes $34,889
for the three months and nine
months ended September 30, 1995
to NPDC) (47,897) (31,200)
Net loss $ (1,972,012) $ (4,366,548)
Net loss per share $ (.07) $ (.22)
Weighted average number of
shares outstanding 28,281,638 19,554,285
The accompanying notes are an integral part of these consolidated
condensed financial statements.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
1995 1994
Revenues
Sales
Alferon N Injection $ 810,433 $ 622,665
Research products and
other revenues 33,168 181,951
Total revenues 843,601 804,616
Costs and expenses
Cost of goods sold and excess/
idle production costs 2,032,754 1,958,000
Research and development (net of
$45,498 and $37,500 for the three
months and $136,494 and $112,500 for
the nine months ended September 30,
1995 and 1994, respectively, of
rental income received from NPDC) 2,708,024 3,835,654
General and administrative
(includes $349,415 and $287,205
for the three months and $928,593
and $1,049,471 for the nine months
ended September 30, 1995 and 1994,
respectively, of charges from NPDC
for management fees and
reimbursements of expenses) 1,401,904 4,077,853
Total costs and expenses 6,142,682 9,871,507
Loss from operations (5,299,081) (9,066,891)
Interest and other income 69,190 148,395
Net loss on sales of
marketable securities (223,297)
Interest expense (includes $34,889
for the three months and nine
months ended September 30, 1995
to NPDC) (80,511) (142,742)
Net loss $ (5,310,402) $ (9,284,535)
Net loss per share $ (.22) $ (.48)
Weighted average number of
shares outstanding 24,306,019 19,469,035
The accompanying notes are an integral part of these consolidated
condensed financial statements.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
Total
Capital in Accumu- Stock-
Common Stock Excess of lated holders'
Shares Amount Par Value Deficit Equity
Balance at Dec.
31, 1994 19,509,291 $ 195,093 $65,572,243 $(62,787,857) $ 2,979,479
Net proceeds
from the public
sale of common
stock 12,000,000 120,000 12,374,035 12,494,035
Termination of
commitment to
repurchase common
stock from Purdue
Frederick 619,994 6,200 2,473,776 2,479,976
Net proceeds from
the sale of common
stock to Fujimoto
Diagnostics,
Inc. 1,034,483 10,345 1,472,155 1,482,500
Net proceeds from
the sale of common
stock to Amarillo
Cell Culture
Company, Inc.
and its
licensee 375,000 3,750 738,750 742,500
Issuance of common
stock in exchange for
warrants to purchase
common stock 900,000 9,000 (9,000)
Proceeds from
exercise of common
stock options 10,000 100 19,900 20,000
Net loss (5,310,402) (5,310,402)
Balance at
September
30, 1995 34,448,768 $ 344,488 $82,641,859 $(68,098,259) $14,888,088
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1995 1994
Cash flows used for operations:
Net loss $ (5,310,402) $ (9,284,535)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 579,377 2,704,506
Reduction of other assets 50,000
Net loss on sales of marketable
securities 223,297
Change in operating assets and liabilities:
Inventories 71,911 1,061,943
Consignment inventory 220,410 (577,170)
Receivables from affiliated companies (19,707)
Accounts and other receivables (722,437) (370,208)
Prepaid expenses and other current assets (2,286) 46,904
Accounts payable and accrued expenses (203,904) (8,778)
Net cash used for operations (5,367,331) (6,173,748)
Cash flows from investing activities:
Purchases of marketable securities (2,496,445)
Sales of marketable securities 5,918,937
Additions to property, plant and equipment (78,798)
Additions to intangible assets (3,052) (81,978)
Net cash (used for) provided by investing activities (3,052) 3,261,716
Cash flows from financing activities:
Net proceeds from sale of common stock and
warrants 14,719,035 1,476,435
Decrease in advances from NPDC (73,821) (8,050)
Reduction of long-term debt (409,275) (1,594,582)
Loans from principal stockholders 1,870,000
Repayment of loans from principal stockholders (1,870,000)
Proceeds from exercise of common stock options 20,000
Purchase of common stock from Runham and Banel (250,000)
Net cash provided by (used for) financing
activities 14,255,939 (376,197)
Net increase (decrease) in cash and cash
equivalents 8,885,556 (3,288,229)
Cash and cash equivalents at beginning of period 330,617 4,247,067
Cash and cash equivalents at end of period $ 9,216,173 $ 958,838
Cash paid for interest expense $ 79,166 $ 199,097
Noncash investing and financing activities:
Offset of receivables in settlement of
obligation to repurchase stock $ 550,000 $
Termination of commitment to repurchase
common stock $ 2,479,976 $
Reductions in marketable securities $ $ 62,227
Commitment to purchase common stock $ $ 3,729,976
The accompanying notes are an integral part of these consolidated
condensed financial statements.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Agreements with The Purdue Frederick Company
In 1988, the Company entered into exclusive marketing and
distribution agreements with Mundipharma Pharmaceutical Company
("Mundipharma"), a related entity of Purdue Pharma, with respect to
ALFERON N Injection, which agreements have been amended from time
to time (as amended, the "Purdue Marketing Agreements"). In 1991,
Mundipharma assigned the right to market and distribute ALFERON N
Injection in the United States to Purdue Pharma and retained the
right to market and distribute ALFERON N Injection in Canada,
Western Europe, Israel, India, Japan, and Australia. In 1993, the
Company reacquired the right to market and distribute ALFERON N
Injection in Japan.
In 1994, an amendment to these agreements was entered into
(the "1994 Purdue Amendment") pursuant to which the Company
reacquired the right to market ALFERON N Injection in Western
Europe and other countries and took over from Purdue the conduct
and funding of clinical trials. Specifically, the 1994 Purdue
Amendment provided, among other things, that (i) the Company
reacquired the right to market ALFERON N Injection in Western
Europe, Israel, India, and Australia (the "Returned Territories"),
subject to the payment to Mundipharma of a royalty equal to 3% of
net sales (as defined) in the Returned Territories until
Mundipharma has received royalty payments equal to $3 million ($5
million under certain circumstances) and 1% of net sales
thereafter; (ii) the Company assumed responsibility for the conduct
and funding of clinical trials to develop new indications for
ALFERON N Injection; and Purdue was granted the right to obtain
marketing and distribution rights for each additional indication of
ALFERON N Injection at such time as the Company files a product
license application or receives FDA approval for any such
indication, by reimbursing the Company for some or all of its
clinical costs plus an additional lump-sum payment; (iii) the
Company agreed to purchase for $4.00 per share 994,994 shares of
Common Stock held by Purdue and certain related parties over a
period of 18 months; (iv) Purdue Pharma and Mundipharma retained
the right to market and distribute ALFERON N Injection in the
United States and Canada, respectively, subject to the Company's
option (the "First Option") to reacquire such rights at a price of
$12 million until July 25, 1995 ($10 million if the First Option
had been exercised before January 1995); provided that the First
Option could not have been exercised unless the Company
simultaneously paid the unpaid balance of the purchase price for
the 994,994 shares referred to above, which payment would have
reduced the First Option exercise price; and (v) Purdue ordered
45,000 vials of ALFERON N Injection at an agreed upon price.
Unless certain minimum purchase levels are reached during certain
annual periods, or minimum payments are made to the Company in lieu
of such minimum purchases, the Company can terminate Purdue Pharma
and Mundipharma's exclusive marketing and distribution rights. All
marketing and distribution costs are borne by Purdue Pharma and
Mundipharma in their respective territories.
In March, 1995, the Company entered into an amendment to the
1994 Purdue Amendment (the "March 1995 Purdue Amendment") pursuant
to which the Company obtained an option, exercisable until
September 30, 1995 (the "Second Option"), to reacquire the
remaining marketing and distribution rights from Purdue Pharma and
Mundipharma. The exercise price of the Second Option was 2.5
million shares of Common Stock; provided that the Option could not
have been exercised unless the Company simultaneously paid the
unpaid balance of the purchase price for the 994,994 shares
referred to above. If 18 months from the date of exercise of the
Second Option by the Company (the "Valuation Date"), the 2.5
million shares of Common Stock did not have a value of at least
$9,037,807 (which value was calculated using the average of the
closing bid and asked prices of the Common Stock as quoted by the
NASDAQ National Market System for the ten trading days ending on
the day prior to the Valuation Date), the Company was required to
issue a note for the shortfall. Such note was required to bear
interest at the prime rate and became due and payable 24 months
from the Valuation Date. The Company agreed that it would utilize
its best efforts to ensure that the 2.5 million shares of Common
Stock would be registered and freely tradeable 18 months from the
date of exercise of the Second Option. If the Second Option were
exercised, the First Option, the royalty obligations, and Purdue's
right to obtain marketing and distribution rights for new
indications contained in the 1994 Purdue Amendment would have
terminated.
In July 1995, the Company entered into an amendment to the
1994 Purdue Amendment and the March 1995 Purdue Amendment (the
"July 1995 Purdue Amendment"), which became effective upon the sale
on August 22, 1995 of the minimum number of shares of Common Stock
in the Offering, pursuant to which the balance owed to Purdue for
the 62,500 shares of Common Stock required to be repurchased in
April 1995 was forgiven and the Company obtained an option,
exercisable until December 31, 1996 (the "Third Option"), to
reacquire the remaining marketing and distribution rights from
Purdue Pharma and Mundipharma. The exercise price of the Third
Option is $5,029,133, subject to reduction as set forth below, plus
350,000 shares of Common Stock if exercised on or before December
31, 1995 or 750,000 shares of Common Stock if exercised after
December 31, 1995. The Company agreed that it will utilize its
best efforts to ensure that such shares will be registered and
freely tradeable upon issuance. The Third Option may not be
exercised unless the Company simultaneously pays the unpaid balance
of the purchase price for any of the 994,994 shares referred to
above then held by Purdue. As of November 7, 1995, Purdue held
619,994 of such shares and such unpaid balance was $2,479,976. The
cash exercise price of the Third Option will be reduced by the
aggregate of (i) the amount paid by the Company to Purdue to
repurchase any of such 619,994 shares held by Purdue, (ii) if
Purdue sells any or all of such 619,994 shares, which may only be
done until December 31, 1996 with the consent of the Company, the
amount received by Purdue from such sale, and (iii) the amount by
which the transfer price for vials sold by the Company to Purdue
Pharma or Mundipharma exceeds $25 per vial. If the Third Option is
exercised, the royalty obligations and Purdue's right to obtain
marketing and distribution rights for new indications contained in
the 1994 Purdue Amendment will terminate. If the Third Option is
not exercised, the Company will no longer have the obligation to
repurchase the 619,994 shares. In July 1995, the Company and
Purdue also agreed to extend the date on which the Company was
obligated to repurchase the final 619,994 shares of Common Stock if
the July 1995 Purdue Amendment did not become effective from July
25, 1995 to August 31, 1995 (or such earlier date on which the
Offering shall have terminated prior to the sale of the minimum
number of shares of Common Stock).
The Company entered into the 1994 Purdue Amendment, the
March 1995 Purdue Amendment, and the July 1995 Purdue Amendment to
provide it with greater financial flexibility and control over the
worldwide marketing and distribution of ALFERON N Injection. The
July 1995 Purdue Amendment provides the Company with the
flexibility to enter into a strategic alliance with a multinational
marketing partner if it elects to exercise the Third Option.
Under the terms of the Purdue Marketing Agreements, the
Company receives a transfer price for the sale of vials of ALFERON
N Injection to Purdue Pharma or Mundipharma. Such transfer price
is calculated based on either a manufacturing cost formula or a
fixed price formula (subject to consumer price index adjustments);
provided, however, that if the Company chooses the fixed price
formula, the Company may be entitled to additional payments if the
net sales price received by Purdue Pharma or Mundipharma for
ALFERON N Injection exceeds certain levels. Pursuant to the July
1995 Purdue Amendment, the transfer price for each vial will be
payable $25 in cash and the balance as an offset to the cash
exercise price of the Third Option. If the Third Option is not
exercised, such offsets will have no value. The Company may choose
the applicable formula every six months. Except as described
below, Purdue Pharma and Mundipharma have no recourse against the
Company in the event that they are unable to resell ALFERON N
Injection to third parties.
In January 1994, pursuant to the 1994 Purdue Amendment,
Purdue ordered 45,000 vials of ALFERON N Injection at an agreed
upon price. In addition, the Company agreed, under certain
circumstances, to replace up to 15,000 vials of ALFERON N Injection
from Purdue's existing inventory at an agreed upon discounted
price. The Company also granted Purdue an option, exercisable (in
whole only) until July 25, 1995, to purchase an additional 100,000
vials of ALFERON N Injection at an agreed upon discounted price.
The option was not exercised.
Note 2. Agreement with Fujimoto Diagnostics, Inc.
In the first quarter of 1995, the Company concluded an
agreement with Fujimoto Diagnostics, Inc. (Fujimoto) of Osaka,
Japan, for the commercialization of the Company's ALFERON N
Injection and ALFERON N Gel in Japan. In connection with the
agreement, Fujimoto purchased 1,034,483 shares of the Company's
Common Stock for $1,500,000 ($1.45 per share, the then current
market price) and committed to purchase an additional $500,000 of
Common Stock in February 1996 based on the then current market
price. The agreement grants Fujimoto exclusive rights to develop,
distribute and sell ALFERON N Injection and ALFERON N Gel in Japan.
Under the agreement, Fujimoto agreed to fund and conduct all
preclinical and clinical studies required for regulatory approval
in Japan. Fujimoto will purchase quantities of ALFERON N Injection
and ALFERON N Gel at agreed-upon prices during the preclinical and
clinical phases.
Note 3. Inventories
Inventories, consisting of material, labor and overhead, are
classified as follows:
September 30, December 31,
1995 1994
Finished goods $ 425,475 $ 342,330
Work in process 200,725 303,111
Raw materials 331,047 383,717
$ 957,247 $ 1,029,158
Inventories at September 30, 1995 and December 31, 1994, are
stated at their estimated net realizable value.
Note 4. Prepaid Royalties
During the second quarter of 1994, the Company adopted a
policy of amortizing prepaid royalties at the greater of the
straight line rate over a five-year period or the amount of
royalties incurred based upon sales. During the third quarter
1994, the Company, in its quarterly evaluation of whether the
unamortized balance of prepaid royalties is realizable, determined
that it was prudent to write off such prepaid royalties. The
Company based this decision on the reduced market price during the
third quarter of the Company's Common Stock, the uncertainty
created by the decision of the United States Patent and Trademark
Office in May 1994 to reexamine the claims of the Hoffmann patent
and upon sales of ALFERON N Injection. During the third quarter of
1994, the amortization and writeoff of prepaid royalties totalling
$2,100,000 were included as general and administrative expense in
the statements of operations and reflected as depreciation and
amortization in the statements of cash flows.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
In August and September 1995, the Company completed the sale
of 12,000,000 shares of Common Stock (the "Offering") for an
aggregate of $14,400,000. Such shares were sold pursuant to a best
efforts public offering, through Sunrise Securities Corp. as
underwriter, of a minimum of 6,500,000 and a maximum of 12,000,000
shares of Common Stock at a public offering price of $1.20 per
share. Of the $12,494,000 of net proceeds from the Offering, the
Company has used $1,870,000 to repay indebtedness to certain
principal stockholders and anticipates that it will use
approximately $7,000,000 for research, product development, and
clinical trials of the Company's products and the balance for
working capital and general corporate purposes.
As of November 3, 1995, the Company had an aggregate of
$8,350,000 in cash and cash equivalents. Until utilized, such cash
and cash equivalents are being invested principally in short-term
interest-bearing investments.
Management believes that the cash currently available will
be sufficient to enable the Company to continue operations until
approximately December 1996, although no assurance can be given in
this regard. To fund the Company's operations beyond such date
and, if it decides to do so, to exercise the option to repurchase
certain marketing rights from Purdue and to repurchase certain
shares of Common Stock from Purdue, the Company will require
additional funding, whether from financial markets or collaborative
or other arrangements with corporate partners or from other
sources, which may not be available when needed, or on terms
acceptable to the Company. Insufficient funds will require the
Company further to delay, scale back, or eliminate certain or all
of its research and development programs or license third parties
to commercialize products or technologies that the Company would
otherwise seek to develop itself. In addition to considering the
financial markets, management is actively pursuing raising required
additional capital by licensing rights to its injectable, topical,
or oral formulations of alpha interferon (as it did with Fujimoto
Diagnostics, Inc. as described below), or entering into
collaborative or other arrangements with corporate partners.
Between May and August 1995, three principal stockholders
of the Company loaned the Company an aggregate of $1,870,000. Such
loans bore interest at prime plus 2% and were repaid with a portion
of the proceeds of the Offering.
In April 1995, Amarillo Cell Culture Company, Incorporated
and its licensee agreed to purchase an aggregate of $750,000 of the
Company's Common Stock at $2.00 per share, all of which cash was
received during the second quarter of 1995.
In the first quarter of 1995, the Company concluded an
agreement with Fujimoto for the commercialization of the Company's
ALFERON N Injection and ALFERON N Gel in Japan. In connection with
the agreement, Fujimoto purchased $1,500,000 of the Company's
Common Stock at $1.45 per share (the then market price), all of
which cash was received during the first quarter of 1995, and is
committed to purchase an additional $500,000 of Common Stock in
February, 1996 at the then market price.
In connection with the amendments to agreements with Purdue,
as described below, during January 1994, Purdue ordered 45,000
vials of ALFERON N Injection at an agreed upon price. With respect
to this order, approximately three-quarters of the purchase price
of the vials was payable upon shipment by the Company to Purdue and
the balance was payable upon sale by Purdue. A portion of the
shipments to fill this order was made on a consignment basis, i.e.
the purchase was subject to a right of return until notification by
Purdue that such vials have been resold. In June and August 1994,
the Company began to fill this order by making shipments of 10,000
and 10,735 vials, respectively, of ALFERON N Injection to Purdue on
a consignment basis. In addition, shipments of 5,718, 9,040 and
3,562 vials of ALFERON N Injection were made to Purdue in September
1994, April 1995 and September 1995, respectively, on a non-
consignment basis. The 5,945 vial balance of this order is
expected to be shipped prior to the end of 1995.
Purdue has informed the Company that from June 1994 through
December 31, 1994, it had sold or distributed as free samples
approximately 15,800 vials of the 20,735 vials purchased on a
consignment basis, and that as of March 1995, Purdue had sold or
distributed as free samples the balance of such consignment
inventory. Purdue has also informed the Company that during the
nine months ended September 30, 1995 and the year ended December
31, 1994, it sold approximately 17,800 vials and 25,000 vials,
respectively, and distributed as free samples approximately 300
vials and 2,000 vials, respectively, of ALFERON N Injection from
its inventory.
In January 1994, the Company amended its marketing and
distribution agreements with Purdue and related parties. Pursuant
to such amended agreements, the Company assumed sole responsibility
to conduct and fund clinical trials required to obtain FDA approval
for additional indications for ALFERON N Injection. Prior to these
amendments, Purdue was responsible for the payment of the costs of
such clinical trials. The Company anticipates that the expansion
of its research and development efforts and clinical trial
activities and its assuming responsibility of the conduct and
funding thereof will increase operating expenses. The Company
intends to seek to enter into joint ventures or other arrangements
with strategic partners who agree to bear all or part of such
expenses.
In connection with the amendments to the agreements with
Purdue, the Company agreed to purchase an aggregate of 994,994
shares of its Common Stock for $3,979,976 ($4.00 per share) from
Purdue and two related entities over a period of 19 months. The
Company purchased 62,500 of such shares of Common Stock for
$250,000 in January 1994 and was obligated to purchase an
additional 250,000 shares of Common Stock for $1,000,000 in 1994.
In 1994, the Company and Purdue agreed to offset $700,000 owed to
the Company by Purdue, for the purchase of ALFERON N Injection
during 1994, against the Company's obligation to purchase
$1,000,000 of the Company's Common Stock from Purdue in 1994. As of
December 31, 1994, $300,000 of this obligation to Purdue had not
been paid and was reflected as a current liability on the balance
sheet. In addition, as of March 31, 1995, the Company had an
additional $67,783 of offsets based upon additional sales of
ALFERON N Injection by Purdue leaving $232,217 of this obligation
outstanding as of such date. In April 1995, the Company was
required to purchase 62,500 shares of Common Stock for $250,000 and
on August 31, 1995 (or such earlier date on which the Offering
shall have terminated prior to the sale of the minimum number of
shares of Common Stock) was obligated to purchase 619,994 shares of
Common Stock for $2,479,976. As of July 31, 1995, the Company had
generated sufficient additional offsets based upon additional sales
of ALFERON N Injection to and by Purdue to repay the $232,217 owed
to Purdue as of March 31, 1995 and to pay $200,843 of the $250,000
owed to Purdue for the April 1995 stock repurchase. In July 1995,
the Company entered into a further amendment to the agreements with
Purdue, which became effective upon the sale on August 22, 1995 of
the minimum number of shares of Common Stock in the Offering,
pursuant to which the balance owed to Purdue for the April 1995
Stock Repurchase (which had been reduced by further offsets) was
forgiven and the Company obtained an option, exercisable until
December 31, 1996, to reacquire the remaining marketing and
distribution rights from Purdue. The exercise price of the option
is $5,029,133, subject to reduction as set forth below, plus
350,000 shares of Common Stock if exercised on or before December
31, 1995 or 750,000 shares of Common Stock if exercised after
December 31, 1995. The option may not be exercised unless the
Company simultaneously purchases any of the 619,994 shares of
Common Stock described above then held by Purdue for $4.00 per
share. The cash exercise price of the option will be reduced by
the aggregate of (i) the amount paid by the Company to Purdue to
repurchase any of such 619,994 shares then held by Purdue, (ii) if
Purdue sells any or all of such 619,994 shares, which may only be
done with the consent of the Company, the amount received by Purdue
from such sale, and (iii) the amount by which the transfer price
for vials sold by the Company to Purdue exceeds $25 per vial. If
the option is not exercised, the Company will no longer have the
obligation to repurchase the 619,994 shares. In addition, the
parties agreed that the transfer price for each vial will be
payable $25 in cash and the balance as an offset to the cash
exercise price of the option. If the option is not exercised, such
offsets will have no value.
Results of Operations
For the nine months ended September 30, 1995, the Company's
revenue of $843,601 included $810,433 from the sale of ALFERON N
Injection and the balance was derived from sales of research
products and other revenues. Revenue of $804,616 for the nine
months ended September 30, 1994 included $622,665 from the sale of
ALFERON N Injection and the balance was derived from sales of
research products, contract research and other revenues.
Notwithstanding the suspension of ALFERON N Injection production
during a portion of the nine months ended September 30, 1995 and
1994, the Company recorded cost of goods sold and ongoing
production facility costs of $2,032,754 and $1,958,000,
respectively.
Research and development expenses during the nine months
ended September 30, 1995 of $2,708,024 decreased by $1,127,630 from
$3,835,654 for the same period in 1994, principally because the
Company reduced its level of research and product development on
ALFERON N Injection. The Company received $136,494 and $112,500
during the nine months ended September 30, 1995 and 1994,
respectively, as rental income from National Patent for the use of
a portion of the Company's facilities, which offset research and
development expenses.
General and administrative expenses for the nine months
ended September 30, 1995 were $1,401,904 as compared to $4,077,853
for the same period in 1994. The decrease of $2,675,949 was
principally due to the amortization and subsequent write-off of
prepaid royalties totalling $2,100,000 in the 1994 period and
decreases in payroll and other expenses in the 1995 period.
National Patent provides certain administrative services for which
the Company paid National Patent $90,000 for each of the nine month
periods ended September 30, 1995 and 1994. In addition, National
Patent provides to the Company, at its estimated cost, certain
personnel and services which the Company uses in its operations.
For the nine months ended September 30, 1995 and 1994, such charges
amounted to $838,593 and $959,471, respectively.
Interest and other income for the nine months ended
September 30, 1995 was $69,190 as compared to $148,395 for the same
period in 1994. The decrease of $79,205 was due to less funds
available for investment in the current period.
For the nine months ended September 30, 1994, the Company
realized a net loss of $223,297 on the sales of marketable
securities which resulted from declines in the fair value of the
Company's investments in obligations of agencies of the United
States Government.
Interest expense for the nine months ended September 30,
1995 and 1994 was $80,511 and $142,742, respectively. The decrease
of $62,231 was due to reduced long-term debt.
As a result of the foregoing, the Company incurred net
losses of $5,310,402 and $9,284,535 for the nine months ended
September 30, 1995 and 1994, respectively.
Recent Tax and Accounting Developments
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of". Statement 121 requires the
Company to estimate the future cash flows expected to result from
the use and eventual disposition of its property, plant and
equipment, and if the sum of such cash flows is less than the
carrying amount of these assets, to recognize an impairment loss to
the extent, if any, that the carrying amount of the assets exceeds
their fair values. The Company is required to adopt Statement 121
not later than January 1, 1996. The Company believes that,
although it has a current period operating loss and a history of
operating losses, expected future cash flows derived from these
assets will be at least equal to their carrying values, and that no
impairment loss will be indicated. The Company bases this
assessment both upon expected future product revenues and upon the
fact that it completed a major manufacturing facility expansion and
purchase of manufacturing equipment in 1991, the cost of which
constitutes a major portion of the carrying value of its property,
plant and equipment. The Company believes that this expanded
facility will be suitable for a number of years without significant
repairs.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
QUALIFICATION RELATING TO FINANCIAL INFORMATION
SEPTEMBER 30, 1995
The financial information included herein is unaudited.
Such information, however, reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion
of management, necessary to a fair statement of the results for
the interim periods. The results for interim periods are not
necessarily indicative of results to be expected for the year.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At a Special Meeting of Stockholders held on August 14,
1995, the following matter was voted upon:
Proposal to amend the Company's Restated Certificate of
Incorporation to increase the total number of authorized
shares of Common Stock which the Company shall have
authority to issue from 30,000,000 to 55,000,000 shares
was adopted with a vote of 11,620,635 for, 7,545 votes
against, and 515 abstained, with respect to this
proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the
period ended September 30, 1995.
<PAGE>
INTERFERON SCIENCES, INC.
SEPTEMBER 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed in
its behalf by the undersigned thereunto duly authorized.
INTERFERON SCIENCES, INC.
DATE: November 13, 1995 By: /s/ Samuel H. Ronel, Ph.D.
Samuel H. Ronel, Ph.D.
President
DATE: November 13, 1995 By: /s/ Donald W. Anderson
Donald W. Anderson
Controller
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