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<NAME> INTERFERON SCIENCES, INC.
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 52,465
<SECURITIES> 0
<RECEIVABLES> 134,566
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<CURRENT-ASSETS> 1,238,799
<PP&E> 11,826,069
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<TOTAL-COSTS> 1,354,212
<OTHER-EXPENSES> 2,594,155
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<INTEREST-EXPENSE> 32,614
<INCOME-PRETAX> (3,338,390)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,338,390)
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</TABLE>
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 June 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 August 8, 1995:
Common Stock 22,511,268 shares
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page No.
Part I. Financial Information:
Consolidated Condensed Balance Sheets--June 30, 1995
and December 31, 1994 1
Consolidated Condensed Statements of Operations--Three
Months and Six Months Ended June 30, 1995 and 1994 2
Consolidated Condensed Statement of Changes in
Stockholders' Equity--Six Months Ended June 30, 1995 3
Consolidated Condensed Statements of Cash Flows--Six
Months Ended June 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial Statements 5-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Qualification Relating to Financial Information 12
Part II. Other Information 13
Signatures 14
<PAGE>
PART I. FINANCIAL INFORMATION
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
1995 1994
(Unaudited) *
ASSETS __________ ____________
Current assets
Cash and cash equivalents $ 52,465 $ 330,617
Accounts and other receivables 134,566 35,546
Inventories 931,750 1,029,158
Consignment inventory 220,410
Receivables from affiliated
companies, net 20,001 20,001
Prepaid expenses and other
current assets 100,017 55,221
___________ ____________
Total current assets 1,238,799 1,690,953
___________ ____________
Property, plant and equipment, at cost 11,826,069 11,826,069
Less accumulated depreciation and
amortization (6,384,396) (6,013,839)
___________ ____________
5,441,673 5,812,230
___________ ____________
Intangible assets, net of amortization 341,297 355,019
Other assets 323,900 323,900
Total assets $ 7,345,669 $ 8,182,102
___________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ $ 409,275
Accounts payable and accrued expenses 1,764,064 1,629,025
Loans from principal stockholders 870,000
Amount due NPDC 282,113 134,347
Amount due Purdue for repurchase of
common stock 63,427 300,000
___________ ____________
Total current liabilities 2,979,604 2,472,647
___________ ____________
Common stock subject to repurchase
commitment (619,994 and 682,494 shares) 2,479,976 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-30,000,000 shares; issued
and outstanding-21,828,774 and
19,509,291 shares 218,288 195,093
Capital in excess of par value 67,794,048 65,572,243
Accumulated deficit (66,126,247) (62,787,857)
___________ ____________
Total stockholders' equity 1,886,089 2,979,479
___________ ____________
Total liabilities and stockholders'
equity $ 7,345,669 $ 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
June 30,
_______________________
1995 1994
_______ ______
Revenues
Sales
Alferon N Injection $ 446,187 $
Research products and
other revenues 6,220 83,445
__________________________
Total revenues 452,407 83,445
__________________________
Costs and expenses
Cost of goods sold and excess/idle
production costs 786,117 450,197
Research and development
(net of $45,498 and $37,500 for the
three months and $90,996 and $75,000
for the six months ended June 30, 1995
and 1994, respectively, of rental
income received from NPDC) 784,317 1,374,907
General and administrative
(includes $274,524 and $290,602 for
the three months and $579,178 and
$762,266 for the six months ended
June 30, 1995 and 1994, respectively,
of charges from NPDC for management
fees and reimbursements of expenses) 403,294 717,414
__________________________
Total costs and expenses 1,973,728 2,542,518
__________________________
Loss from operations (1,521,321) (2,459,073)
Interest and other income 3,789 44,071
Net loss on sales of
marketable securities (110,954)
Interest expense (22,705) (46,237)
__________________________
Net loss $ (1,540,237) $(2,572,193)
__________________________
Net loss per share $ (.07) $ (.13)
__________________________
Weighted average number of
shares outstanding 22,463,768 19,401,785
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)
Six Months Ended
June 30,
_______________________
1995 1994
_______ ______
Revenues
Sales
Alferon N Injection $ 620,897
Research products and
other revenues 11,129 84,761
___________________________
Total revenues 632,026 84,761
___________________________
Costs and expenses
Cost of goods sold and excess/idle
production costs 1,354,212 912,983
Research and development
(net of $45,498 and $37,500 for the
three months and $90,996 and $75,000
for the six months ended June 30, 1995
and 1994, respectively, of rental
income received from NPDC) 1,744,469 2,544,207
General and administrative
(includes $274,524 and $290,602 for
the three months and $579,178 and
$762,266 for the six months ended
June 30, 1995 and 1994, respectively,
of charges from NPDC for management
fees and reimbursements of expenses) 849,686 1,457,357
___________________________
Total costs and expenses 3,948,367 4,914,547
___________________________
Loss from operations (3,316,341) (4,829,786)
Interest and other income 10,565 125,193
Net loss on sales of
marketable securities (101,852)
Interest expense (32,614) (111,542)
___________________________
Net loss $ (3,338,390) $(4,917,987)
___________________________
Net loss per share $ (.15) $ (0.25)
___________________________
Weighted average number of
shares outstanding 21,813,559 19,410,714
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
SIX MONTHS ENDED JUNE 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 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 (3,338,390) (3,338,390)
______________________________________________________________
Balance at June
30, 1995 21,828,774 $218,288 $67,794,048 $(66,126,247) $1,886,089
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)
Six Months Ended
June 30,
___________________________
1995 1994
____________ ____________
Cash flows used for operations:
Net loss $(3,338,390) $(4,917,987)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 386,697 507,742
Reduction of other assets 50,000
Net loss on sales of marketable
securities 101,852
Change in operating assets and liabilities:
Inventories 97,408 507,768
Consignment inventory 220,410 (450,000)
Receivables from affiliated companies (3,960)
Accounts and other receivables (585,593) (12,234)
Prepaid expenses and other current
assets (44,796) (50,597)
Accounts payable and accrued expenses 135,039 43,427
____________ ____________
Net cash used for operations (3,129,225) (4,223,989)
____________ ____________
Cash flows from investing activities:
Purchases of marketable securities (2,496,445)
Sales of marketable securities 4,290,515
Additions to property, plant and
equipment (78,798)
Additions to intangible and other assets (2,418) (17,434)
____________ ____________
Net cash (used for) provided by
investing activities (2,418) 1,697,838
____________ ____________
Cash flows from financing activities:
Net proceeds from sale of common stock 2,225,000
Increase (decrease) in advances from
NPDC 147,766 (8,050)
Reduction of long-term debt (409,275) (1,203,183)
Loans from principal stockholders 870,000
Proceeds from exercise of common stock options 20,000
Purchase of common stock
from Runham and Banela (250,000)
____________ ____________
Net cash provided by (used for) financing
activities 2,853,491 (1,461,233)
____________ ____________
Net decrease in cash and cash equivalents (278,152) (3,987,384)
Cash and cash equivalents at beginning
of period 330,617 4,247,067
____________ ____________
Cash and cash equivalents at end of period $ 52,465 $ 259,683
____________ ____________
Cash paid for interest expense $ 31,269 $ 171,996
____________ ____________
Noncash investing and financing activities:
Offset of receivables in settlement of
obligation to repurchase stock $ 486,573 $
____________ ____________
Reductions in marketable securities $ $ 174,775
____________ ____________
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 June 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 becomes effective upon the
sale on or before August 31, 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 will be forgiven and the Company will
obtain 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 August 8, 1995,
Purdue held 619,994 of such shares (excluding the 62,500 shares
referred to above) 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, if the July
1995 Purdue Amendment becomes effective, 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 July 1995 Purdue
Amendment becomes effective but 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 is obligated to repurchase
the final 619,994 shares of Common Stock if the July 1995 Purdue
Amendment does not become effective from July 25, 1995 to August
31, 1995 (or such earlier date on which the Offering shall
terminate 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:
June 30, December 31,
1995 1994
______________ ______________
Finished goods $ 330,575 $ 342,330
Work in process 236,284 303,111
Raw materials 364,891 383,717
____________ ____________
$ 931,750 $ 1,029,158
Inventories at June 30, 1995 and December 31, 1994, are stated
at their estimated net realizable value.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
As of August 8, 1995, the Company had an aggregate of $5,000
in cash. Consequently, management is actively pursuing raising
required additional capital by taking one or more of the following
actions (i) issuing securities in a public or private equity
offering, (ii) licensing rights to its injectable, topical or oral
formulations of alpha interferon (as it did with Fujimoto), or
(iii) entering into collaborative or other arrangements with
corporate partners. Lack of funds has caused the Company to
curtail its manufacturing activities and to delay or scale back
some of its clinical activities and continued lack of funding will
require the Company to eliminate certain or all of its activities
or license third parties to commercialize products or technologies
that the Company would otherwise seek to develop itself.
On May 19, 1995, the Company filed a registration statement
with the Securities and Exchange Commission, which statement was
amended on July 18, 1995 and was subsequently amended again on
August 2 and August 10, 1995, covering a proposed public offering
(the "Offering") for a 6,500,000 share minimum, 12,000,000 share
maximum of Common Stock through Sunrise Securities Corp. as
underwriter. The net proceeds to the Company from the sale of the
Common Stock are estimated to be $6,633,200 if the minimum number
of shares are sold and $12,542,000 if the maximum number of shares
are sold. At the close of business on August 14, 1995, such
registration statement was declared effective by the Securities
and Exchange Commission.
On May 3, 1995, three principal stockholders of the Company
committed to loan the Company an aggregate of $920,000, all of
which was received by July 6, 1995. Such loans bear interest at
prime plus 2% and mature on the earlier of (i) the first date that
the Company receives gross proceeds of at least $7,500,000 from a
public offering (the "Public Offering") of Common Stock and (ii)
November 2, 1995. If the indebtedness matures as a result of a
Public Offering, repayment of principal of the indebtedness may be
made, at the option of the Company, by delivery of shares of Common
Stock valued at the public offering price per share in the Public
Offering. The Company has determined not to exercise such option
and will repay such indebtedness out of the proceeds of the
Offering, but the holders of such indebtedness have expressed an
interest to invest in the Offering an amount equal to the principal
of the indebtedness being repaid to purchase the Principal
Stockholder Shares. There can be no assurance, however, that the
holders of such indebtedness will purchase the principal
stockholder shares. On July 17, 1995, two of such principal
stockholders loaned the Company an aggregate of an additional
$650,000 and since July 17, 1995 one of such principal stockholders
has loaned the Company an additional $100,000 on the same terms as
the terms of the earlier loans except that the Company does not
have the option to repay the principal of such additional
indebtedness by delivery of shares of Common Stock. Such
additional indebtedness will be repaid out of the proceeds of the
Offering. In addition, certain of the principal stockholders of
the Company may lend the Company additional amounts prior to the
consummation of the Offering to provide working capital, and, if
incurred, such additional indebtedness may also be repaid out of
the net 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 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 and 9,040
vials of ALFERON N Injection were made to Purdue in September 1994
and April 1995, respectively, on a non-consignment basis. The
9,507 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
six months ended June 30, 1995 and the year ended December 31,
1994, it sold approximately 12,800 vials and 25,000 vials,
respectively, and distributed as free samples approximately 200
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 18 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. 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 terminate prior to the sale of the minimum number of shares
of Common Stock) is 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 becomes effective upon the sale on or before August
31, 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 will be forgiven and the Company will
obtain 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 six months ended June 30, 1995, the Company's revenue
of $632,026 included $620,897 from the sale of ALFERON N Injection
and the balance was derived from sales of research products.
Revenue of $84,761 for the six months ended June 30, 1994 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 six months ended June
30, 1995 and 1994, the Company recorded cost of goods sold and
ongoing production facility costs of $1,354,212 and $912,983,
respectively.
Research and development expenses during the six months ended
June 30, 1995 of $1,744,469 decreased by $799,738 from $2,544,207
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 $90,996 and $75,000 during the six
months ended June 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 six months ended
June 30, 1995 were $849,686 as compared to $1,457,357 for the same
period in 1994. The decrease of $607,671 was principally due to
decreases in payroll and other expenses. National Patent provides
certain administrative services for which the Company paid National
Patent $60,000 for each of the six month periods ended June 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 six months ended
June 30, 1995 and 1994, such charges amounted to $519,178 and
$702,266, respectively.
Interest and other income for the six months ended June 30,
1995 was $10,565 as compared to $125,193 for the same period in
1994. The decrease of $114,628 was due to less funds available for
investment in the current period.
For the six months ended June 30, 1994, the Company realized
a net loss of $101,852 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 six months ended June 30, 1995 and
1994 was $32,614 and $111,542, respectively. The decrease of
$78,928 was due to reduced long-term debt.
As a result of the foregoing, the Company incurred net losses
of $3,338,390 and $4,917,987 for the six months ended June 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
JUNE 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 the Annual Meeting of Shareholders held on June 6,
1995, the following matters were voted upon:
(a) Dr. Leon Botstein, Jerome I. Feldman, Martin M.
Pollak, Ogden R. Reid, Dr. Samuel H. Ronel, Dr.
Stanley G. Schutzbank, Dr. Roald Hoffmann and
Sheldon L. Glashow were elected to serve as
directors of the Company for a one-year term.
(b) The reappointment of KPMG Peat Marwick LLP as
auditors was adopted with a vote of 13,439,861 for
and 14,685 votes against this proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit I - Copy of Notice and Proxy Statement for
Annual Meeting of Shareholders held June 6, 1995,
filed with Securities and Exchange Commission
pursuant to Section 14 of the Securities and
Exchange Act of 1934 and incorporated herein by
reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the
period ended June 30, 1995.
<PAGE>
INTERFERON SCIENCES, INC.
JUNE 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: August 14, 1995 By: /s/ Samuel H. Ronel, Ph.D.
Samuel H. Ronel, Ph.D.
President
DATE: August 14, 1995 By: /s/ Donald W. Anderson
Donald W. Anderson
Controller
