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, 1996
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 2, 1996:
Common Stock 42,574,294 shares
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page No.
Part I. Financial Information:
Consolidated Condensed Balance Sheets--June 30, 1996
and December 31, 1995 1
Consolidated Condensed Statements of Operations--Three
Months and Six Months Ended June 30, 1996 and 1995 2-3
Consolidated Condensed Statement of Changes in
Stockholders' Equity--Six Months Ended
June 30, 1996 4
Consolidated Condensed Statements of Cash Flows--Six
Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
Qualification Relating to Financial Information 14
Part II. Other Information 15-16
Signatures 17
<PAGE>
PART I. FINANCIAL INFORMATION
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
1996 1995
(Unaudited) *
ASSETS ------------ ------------
Current assets
Cash and cash equivalents $ 12,297,625 $ 7,221,108
Accounts and other receivables 361,449 47,351
Inventories 2,369,208 815,978
Receivables from NPDC and
affiliated companies, net 15,035 27,211
Prepaid expenses and other
current assets 243,841 76,000
------------ ------------
Total current assets 15,287,158 8,187,648
------------ ------------
Property, plant and equipment,
at cost 12,337,414 11,894,176
Less accumulated depreciation and
amortization (7,129,167) (6,760,181)
------------ ------------
5,208,247 5,133,995
------------ ------------
Intangible assets, net of
amortization 326,926 341,596
Other assets 173,900 289,343
------------ ------------
Total assets $ 20,996,231 $ 13,952,582
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued expenses $ 1,273,002 $ 1,125,806
------------- -------------
Total current liabilities 1,273,002 1,125,806
------------- -------------
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 shares; issued
and outstanding-42,574,294 and
34,448,768 shares 425,743 344,488
Capital in excess of par value 97,312,186 82,641,859
Accumulated deficit (78,014,700) (70,159,571)
------------- -------------
Total stockholders' equity 19,723,229 12,826,776
------------- -------------
Total liabilities and stockholders'
equity $ 20,996,231 $ 13,952,582
============= =============
*The condensed balance sheet as of December 31, 1995 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,
--------------------------
1996 1995
------------ -----------
Revenues
Sales
Alferon N Injection $ 405,288 $ 446,187
Research products and other revenues 8,264 6,220
------------ ------------
Total revenues 413,552 452,407
------------ ------------
Costs and expenses
Cost of goods sold and excess/idle
production costs 244,774 786,117
Research and development
(net of $64,746 and $45,498 of
rental income received from NPDC) 1,349,884 784,317
General and administrative
(includes $120,384 and $274,524
of payments to NPDC for management
fees and reimbursements of certain
salaries and operating expenses; net
of $70,787 received from NPDC for the
three months ended June 30, 1996 for
reimbursements of certain salaries) 1,250,304 403,294
Cost of reacquisition of marketing
rights 3,313,705
------------ ------------
Total costs and expenses 6,158,667 1,973,728
------------ ------------
Loss from operations (5,745,115) (1,521,321)
Interest and other income 121,186 3,789
Interest expense (22,705)
------------ ------------
Net loss $(5,623,929) $(1,540,237)
============ ============
Net loss per share $ (.15) $ (.07)
============ ============
Weighted average number of
shares outstanding 38,480,150 22,463,768
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,
--------------------------
1996 1995
------------ -----------
Revenues
Sales
Alferon N Injection $ 405,288 $ 620,897
Research products and other revenues 14,049 11,129
------------ ------------
Total revenues 419,337 632,026
------------ ------------
Costs and expenses
Cost of goods sold and excess/idle
production costs 1,026,315 1,354,212
Research and development
(net of $129,492 and $90,996 of
rental income received from NPDC) 2,324,193 1,744,469
General and administrative
(includes $242,489 and $579,178
of payments to NPDC for management
fees and reimbursements of certain
salaries and operating expenses; net
of $150,335 received from NPDC for the
six months ended June 30, 1996 for
reimbursements of certain salaries) 1,800,474 849,686
Cost of reacquisition of marketing
rights 3,313,705
------------ ------------
Total costs and expenses 8,464,687 3,948,367
------------ ------------
Loss from operations (8,045,350) (3,316,341)
Interest and other income 190,221 10,565
Interest expense (32,614)
------------ ------------
Net loss $(7,855,129) $(3,338,390)
============ ============
Net loss per share $ (.21) $ (.15)
============ ============
Weighted average number of
shares outstanding 36,752,415 21,813,559
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, 1996
(Unaudited)
Total
Capital in Accumu- Stock-
Common Stock Excess of lated holders'
Shares Amount par value Deficit Equity
------ ------ ---------- -------- --------
Balance at
Dec. 31,
1995 34,448,768 $344,488 $82,641,859 $(70,159,571) $12,826,776
Net proceeds
from public
sale of
common
stock 8,000,000 80,000 14,373,458 14,453,458
Other issuances
of common
stock 125,526 1,255 296,869 298,124
Net loss (7,855,129) (7,855,129)
---------------------------------------------------------------
Balance at
June 30,
1996 42,574,294 $425,743 $97,312,186 $(78,014,700) $19,723,229
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,
-----------------------
1996 1995
------------ ------------
Cash flows used for operations:
Net loss $(7,855,129) $(3,338,390)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 384,298 386,697
Compensation paid with common stock 298,124
Change in operating assets and liabilities:
Inventories (1,553,230) 97,408
Consignment inventory 220,410
Receivables from NPDC and affiliated
companies 12,176
Accounts and other receivables (314,098) (585,593)
Prepaid expenses and other current
assets (167,841) (44,796)
Accounts payable and accrued expenses 147,196 135,039
------------ ------------
Net cash used for operations (9,048,504) (3,129,225)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and
equipment (234,185)
Additions to intangible and other assets (94,252) (2,418)
------------ ------------
Net cash used for investing activities (328,437) (2,418)
------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 14,453,458 2,225,000
Increase in advances from NPDC 147,766
Reduction of long-term debt (409,275)
Loans from principal stockholders 870,000
Proceeds from exercise of common
stock options 20,000
------------ ------------
Net cash provided by financing activities 14,453,458 2,853,491
------------ ------------
Net increase (decrease) in cash and
cash equivalents 5,076,517 (278,152)
Cash and cash equivalents at beginning
of period 7,221,108 330,617
------------ ------------
Cash and cash equivalents at end of period $12,297,625 $ 52,465
============ ============
Cash paid for interest expense $ $ 31,269
============ ============
Noncash investing and financing activities:
Offset of receivables in settlement of
obligation to repurchase stock $ $ 486,573
============ ============
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 Purdue
In 1988, the Company entered into exclusive marketing and
distribution agreements with Mundipharma Pharmaceutical Company
("Mundipharma") with respect to ALFERON(R) N Injection. In 1991,
Mundipharma assigned the right to market and distribute ALFERON N
Injection in the United States to a related entity, Purdue Pharma
L.P. ("Purdue Pharma," and collectively with Mundipharma and its
other affiliates, "Purdue"), and retained the right to market and
distribute ALFERON N Injection in Canada, Western Europe, Israel,
India, Japan, and Australia. In 1993 and 1994, (i) the Company
reacquired the right to market and distribute ALFERON N Injection
in all countries other than the United States and Canada; (ii) the
Company assumed responsibility for the conduct and funding of
clinical trials to develop new indications for ALFERON N Injection;
(iii) the Company agreed to purchase for $4.00 per share 994,994
shares (the "Purdue Shares") of Common Stock of the Company held by
Purdue over a period of 19 months; and (iv) Purdue Pharma and
Mundipharma granted the Company an option (as amended, the
"Repurchase Option") to reacquire the right to market and
distribute ALFERON N Injection in the United States and Canada. In
July 1995, the Company was relieved of its obligation to repurchase
the remaining 619,994 Purdue Shares if the Repurchase Option was
not exercised.
In April 1996, the Company entered into an agreement with
Purdue, conditioned upon the sale of at least 5,000,000 shares of
Common Stock in a public offering, to reacquire the remaining
marketing and distributuion rights from Purdue Pharma and
Mundipharma for $3,260,962 in cash, subject to minor adjustment. In
connection with the agreement, (i) Purdue Pharma agreed to provide,
during the first year after the reacquisition, certain distribution
services to the Company with respect to 24,000 vials of ALFERON N
Injection at an aggregate cost of $240,000, (ii) Purdue Pharma
agreed to provide during the second year after the reacquisition,
if requested by the Company, certain distribution services to the
Company with respect to up to 30,000 vials of ALFERON N Injection
at a cost of $15 per vial, and (iii) the Company agreed to purchase
from Purdue Pharma all vials of ALFERON N Injection and all other
assets of Purdue Pharma used exclusively in its ALFERON N Injection
business at an aggregate cost of $259,050 in cash, subject to minor
adjustment. In addition, at the time of entering into the
agreement, Purdue sold its remaining 619,994 Purdue Shares. On May
2, 1996, the Company completed the sale of 8,000,000 shares of
Common Stock for an aggregate of $16,000,000 (the "Offering"). The
Company applied $3,760,012 of the net proceeds of the Offering to
reacquire such marketing rights, pay for the first year's
distribution services, and purchase such vials and other assets.
The $3,313,705 cost of reacquisition of distribution rights from
Purdue was charged to expense in the second quarter of 1996.
Note 2. Agreement with Cell Pharm GmbH
In April 1996, the Company entered into a supply and
distribution agreement (the "Cell Pharm Agreement") with Cell Pharm
GmbH ("Cell Pharm"). Cell Pharm, headquartered in Hanover, Germany,
is a privately-owned pharmaceutical company primarily involved in
the distribution and manufacture of products for cancer treatment
and other uses. The Cell Pharm Agreement, which terminates on June
30, 2001, unless renewed, grants Cell Pharm rights to distribute,
promote, and sell ALFERON N Injection in Germany. The Cell Pharm
Agreement provides that the Company will supply Cell Pharm with
ALFERON N Injection at specified prices, and obligates Cell Pharm
to purchase specified minimum amounts in each annual period. In
addition, Cell Pharm is required to pay the Company 50% of the
incremental revenue Cell Pharm receives as a result of selling the
ALFERON N Injection at a price higher than a specified price. Cell
Pharm is required to maintain an active and efficient sales and
customer service organization with adequately trained personnel for
marketing and selling the ALFERON N Injection. Cell Pharm
represents to the Company that it has obtained, and Cell Pharm
agrees to maintain in effect, all registrations, approvals, and
consents from governments in Germany as are necessary to permit or
facilitate the lawful handling, promotion, and resale of ALFERON N
Injection in Germany. Cell Pharm has informed the Company that it
intends to market ALFERON N Injection under the trade name
Cellferon(R), pursuant to Cell Pharm's existing regulatory approval
to market Cellferon in Germany for the treatment of hairy cell
leukemia and for the treatment of patients who develop antibodies
against recombinant alpha interferons.
Note 3. Inventories
Inventories, consisting of material, labor and overhead, are
classified as follows:
June 30, December 31,
1996 1995
-------------- --------------
Finished goods $ 764,334 $ 344,550
Work in process 1,252,666 162,567
Raw materials 352,208 308,861
------------ ------------
$ 2,369,208 $ 815,978
Finished goods inventory at June 30, 1996 and December 31,
1995 consisted of vials of ALFERON N Injection.
<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 2, 1996, the Company had an aggregate of
$11,100,000 in cash and cash equivalents. Until utilized, such cash
and cash equivalents are being invested principally in short-term
interest-bearing investments.
The Company requires substantial funds to conduct research and
development and preclinical and clinical testing and to market its
products. The Company anticipates that its future capital
requirements will increase as a result of the repurchase of certain
marketing rights from Purdue. For the six months ended June 30,
1996 and the years ended December 31, 1995, 1994, and 1993, the
cash utilized by the Company's operations was approximately $9.0
million, $7.1 million, $7.8 million, and $7.8 million,
respectively. The Company's future capital requirements will depend
on many factors, including: continued scientific progress in its
drug development programs; the magnitude of these programs;
progress with preclinical testing and clinical trials; the time and
costs involved in obtaining regulatory approvals; the costs
involved in filing, prosecuting, and enforcing patent claims;
competing technologies and market developments; changes in its
existing research relationships; the ability of the Company to
establish collaborative arrangements; and effective
commercialization activities and arrangements.
Based on the Company's estimates of revenues and expenses,
management believes that the cash currently available will be
sufficient to enable the Company to continue operations for
approximately 20 months. However, actual results, especially with
respect to revenues, may differ materially from such estimates, and
no assurance can be given that additional funding will not be
required sooner than anticipated or that such additional funding,
whether from financial markets or collaborative or other
arrangements with corporate partners or from other sources, will be
available when needed or on terms acceptable to the Company.
Insufficient funds will require the Company to delay, scale back,
or eliminate certain or all of its research and development
programs or to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop
itself or to shut down or curtail its manufacturing facility.
On May 2, 1996, the Company completed the sale of 8,000,000
shares of Common Stock for an aggregate of $16,000,000. Of the net
proceeds of $14,453,000, the Company has used an aggregate of
$3,760,012 to pay Purdue and anticipates that it will use
approximately $6,000,000 for research, product development and
clinical trials of the Company's products and the balance for
working capital and general corporate purposes.
In August and September 1995, the Company completed the sale
of 12,000,000 shares of Common Stock for an aggregate of
$14,400,000 (the "August/September Offering"). Of the $12,494,000
of net proceeds from the August/September 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.
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 August/September Offering.
In April 1995, Amarillo Cell Culture Company, Incorporated and
its licensee agreed to purchase an aggregate of $750,000 of 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 Diagnostics, Inc. ("Fujimoto"), a
pharmaceutical company located in 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 $1,500,000 of Common Stock at $1.45 per share (the then
market price), all of which cash was received during the first
quarter of 1995, and agreed to purchase an additional $500,000 of
Common Stock on February 6, 1996 at the then market price. Such
additional $500,000 of Common Stock has to date not been purchased.
Fujimoto has advised the Company that, to date, it has incurred
higher than anticipated development expenses, and that it has
determined that there may be greater difficulties in obtaining
Japanese regulatory approval than originally anticipated. Fujimoto
has therefore requested that the Company renegotiate such
investment agreement and the related commercialization agreement.
The Company intends to meet with Fujimoto to consider its request.
During January 1994, Purdue ordered 45,000 vials of ALFERON
N Injection at an agreed upon price, which were shipped between
June 1994 and November 1995. In June 1995, the Company received
purchase orders from Purdue totalling 22,744 vials of ALFERON N
Injection, of which 4,431 vials were shipped in November 1995. The
balance of the order was cancelled when the Company reacquired the
marketing rights for ALFERON N Injection in the United States and
Canada from Purdue. Purdue has informed the Company that during
the six months ended June 30, 1996 and the years ended December 31,
1995 and 1994, it sold approximately 5,200 vials, 23,900 vials and
25,000 vials, respectively, and distributed as free samples
approximately 90 vials, 400 vials and 2,000 vials, respectively, of
ALFERON N Injection from its inventory. In addition, during the
period from May 6, 1996 through June 30, 1996, the Company sold
approximately 2,800 vials and distributed as free samples
approximately 50 vials.
In January 1994, the Company amended its marketing and
distribution agreements with Purdue. 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. During June and July 1996, respectively, the
Company commenced a Phase 3 clinical trial in HIV-positive patients
and a Phase 3 clinical trial in chronic Hepatitis C patients. The
Company anticipates that the expansion of its research and
development efforts and clinical trial activities and its assuming
responsibility for the conduct and funding thereof will increase
operating expenses. The Company anticipates that its future capital
requirements will increase even more as a result of the
reacquisition of marketing rights from Purdue. 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 April 1996, the Company entered into an agreement with
Purdue, conditioned upon the sale of at least 5,000,000 shares of
Common Stock in the Offering, to reacquire the remaining marketing
and distribution rights from Purdue Pharma and Mundipharma for
$3,260,962 in cash, subject to minor adjustment. In connection with
the agreement (i) Purdue Pharma agreed to provide during the first
year after the reacquisition certain distribution services to the
Company with respect to 24,000 vials of ALFERON N Injection at an
aggregate cost of $240,000, (ii) Purdue Pharma agreed to provide
during the second year after the reacquisition, if requested by the
Company, certain distribution services to the Company with respect
to up to 30,000 vials of ALFERON N Injection at a cost of $15 per
vial, and (iii) the Company agreed to purchase from Purdue Pharma
all vials of ALFERON N Injection and all other assets of Purdue
Pharma used exclusively in its ALFERON N Injection business at an
aggregate cost of $259,050 in cash, subject to minor adjustment. In
addition, at the time of entering into the agreement, Purdue sold
its remaining 619,994 shares of Common Stock. Upon completion of
the Offering, the Company applied $3,760,012 of the net proceeds to
reacquire such marketing rights, pay for the first year's
distribution services, and purchase such vials and other assets.
The $3,313,705 cost of reacquisition of distribution rights from
Purdue was charged to expense in the second quarter of 1996.
The Company believes that the reacquisition of marketing
rights from Purdue provides it with greater financial flexibility
and control over the distribution of ALFERON N Injection. The
Company intends to focus its marketing efforts in the United States
on making additional sales to existing customers. While the Company
does not expect to immediately form a sales force, it will consider
doing so based upon sales experience and any approvals obtained for
new indictions.
Results of Operations
For the six months ended June 30, 1996, the Company's revenues
of $419,337 included $405,288 from the sale of ALFERON N Injection
and the balance from sales of research products. Revenues of
$632,026 for the six months ended June 30, 1995 included $620,897
from the sale of ALFERON N Injection and the balance from sales of
research products. The decline in revenues during the 1996 Period
compared to the 1995 Period was principally due to sales of ALFERON
N Injection to Purdue declining from approximately $540,000 in the
1995 Period to none in the 1996 Period, offset in part by sales of
ALFERON N Injection to Cell Pharm in the 1996 Period and direct
sales of ALFERON N Injection by the Company in the 1996 Period
after it reacquired the United States and Canadian marketing rights
for ALFERON N Injection from Purdue in May 1996. There were no
sales to Purdue during the 1996 Period because the Company was
negotiating the reacquisition of United States and Canadian
marketing rights from Purdue during such period and Purdue had
adequate inventory from which to make sales pending the
consummation of such reacquisition. Cost of goods sold and
excess/idle production costs totalled $1,026,315 and $1,354,212 for
the six months ended June 30, 1996 and 1995, respectively. The
inventory which was sold during the six months ended June 30, 1996
and 1995 had previously been written down to its then net
realizable value. Since the facility was operating during the six
months ended June 30, 1996 and 1995, excess/idle production costs
primarily represented current production costs in excess of the
estimated net realizable value of the inventory produced. The
positive gross margin achieved during the three months ended June
30, 1996 reflects the higher selling prices of ALFERON N Injection
realized as a result of the reacquisition of United States
marketing rights, as well as the low carrying values of inventories
written down in prior periods due to the sales prices specified in
the Purdue distribution agreements.
Research and development expenses during the six months ended
June 30, 1996 of $2,324,193 increased by $579,724 from $1,744,469
for the same period in 1995, principally because the Company has
increased its level of clinical research on ALFERON N Injection.
The Company received $129,492 and $90,996 during the six months
ended June 30, 1996 and 1995, respectively, as rental income from
National Patent Development Corporation ("NPDC") 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, 1996 were $1,800,474 as compared to $849,686 for the same
period in 1995. The increase of $950,788 was principally due to
nonrecurring compensation expenses of approximately $550,000 and
the balance to increases in payroll and other operating expenses,
including distribution expenses of $40,000 for ALFERON N Injection
incurred as a result of the Company's reacquisition of marketing
rights. NPDC provides certain administrative services for which the
Company paid NPDC $60,000 for each of the six month periods ended
June 30, 1996 and 1995. In addition, for the six months ended June
30, 1996 and 1995, the Company reimbursed NPDC $97,500 and
$124,998, respectively, for expenses paid by NPDC on behalf of the
Company. During the six months ended June 30, 1995, NPDC provided
to the Company, at its estimated cost, certain personnel which the
Company used in its operations. For the six months ended June 30,
1995, payments to NPDC for the services provided to the Company by
NPDC personnel amounted to $394,180. Commencing January 1, 1996,
most of the NPDC personnel who had been providing a portion of
their time to the Company became employees of the Company and are
now providing a portion of their time to NPDC at the Company's
estimated cost. For the six months ended June 30, 1996, receipts
from NPDC for the services provided to NPDC by Company personnel
amounted to $150,335 and payments to NPDC for the services provided
to the Company by NPDC personnel amounted to $84,989.
The $3,313,705 cost of reacquisition of marketing rights from
Purdue was charged to expense in the second quarter of 1996.
Interest and other income for the six months ended June 30,
1996 was $190,221 as compared to $10,565 for the same period in
1995. The increase of $179,656 was due to more funds available for
investment in the current period.
Interest expense for the six months ended June 30, 1996 and
1995 was zero and $32,614, respectively. The decrease was due to
the absence of interest bearing debt during the 1996 period.
As a result of the foregoing, the Company incurred net losses
of $7,855,129 and $3,338,390 for the six months ended June 30, 1996
and 1995, respectively.
Recent Tax and Accounting Developments
Effective January 1, 1996, the Company adopted 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 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.
In December 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), effective for years beginning after December 15,
1995. Under SFAS 123, the Company may elect either a "fair value"
based method or the current "intrinsic value" based method of
accounting prescribed by APB No. 25, "Accounting for Stock Issued
to Employees," for its stock-based compensation arrangements. Under
the "intrinsic value" based method, the Company will be required to
disclose in the footnotes to the consolidated financial statements
net income and earnings per share computed under the "fair value"
based method. The Company has elected to continue accounting for
stock-based compensation arrangements using the "intrinsic value"
based method; therefore, the adoption of SFAS 123 will not impact
the Company's results of operations or financial condition.
Forward-Looking Statements
This report contains certain forward-looking statements
reflecting management's current views with respect to future events
and financial performance. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking
statements, including, but not limited to, uncertainty of obtaining
additional funding for the Company; uncertainty of obtaining United
States regulatory approvals for the Company's products under
development and foreign regulatory approvals for the Company's FDA-
approved product and products under development and, if such
approvals are obtained, uncertainty of the successful commercial
development of such products; substantial competition from
companies with substantially greater resources than the Company in
the Company's present and potential businesses; no guaranteed
source of required materials for the Company's products; dependence
on certain distributors to market the Company's products; potential
adverse side effects from the use of the Company's products;
potential patent infringement claims against the Company; possible
inability of the Company to protect its technology; uncertainty of
pharmaceutical pricing; substantial royalty obligations payable by
the Company; limited marketing and production experience of the
Company; risk of product liability; and risk of loss of key
management personnel, all of which are difficult to predict and
many of which are beyond control of the Company.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
QUALIFICATION RELATING TO FINANCIAL INFORMATION
JUNE 30, 1996
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 Stockholders held on June 19,
1996, the following individuals were elected to serve as
directors of the Company for a one-year term, with each
individual nominee receiving the following votes:
Director Votes For Votes Withheld
Dr. Leon Botstein 20,942,383 250,665
Jerome I. Feldman 21,138,583 54,465
Martin M. Pollak 21,138,683 54,365
Lawrence M. Gordon 21,142,383 50,665
Scott N. Greenberg 21,142,383 50,665
Ogden R. Reid 21,141,783 51,265
Dr. Samuel H. Ronel 21,142,183 50,865
Dr. Stanley G. Schutzbank 21,142,383 50,665
Dr. Roald Hoffmann 21,142,383 50,665
Sheldon L. Glashow 21,142,383 50,665
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.4 -- Form of Underwriter's Purchase Options
issued to the Underwriter in connection
with the April 1996 Offering by the
Registrant. Incorporated herein by
reference to Exhibit 4.4 to Registration
Statement No. 333-00845.
10.48 -- Supply and Distribution Agreement, dated as
of April 3, 1996, between the Registrant
and Cell Pharm GmbH. Incorporated herein by
reference to Exhibit 10.56 to Registration
Statement No. 333-00845.
10.49 -- Quality Assurance Agreement, dated as of
April 3, 1996, between the Registrant and
Cell Pharm GmbH. Incorporated herein by
reference to Exhibit 10.57 to Registration
Statement No. 333-00845.
10.50 -- RS Agreement, dated April 23, 1996, by and
among the Registrant, Mundipharma
Pharmaceutical Company, and Purdue Pharma
L.P. Incorporated herein by reference to
Exhibit 10.58 to Registration Statement No.
333-00845.
10.51 -- Agreement, dated April 23, 1996, between
the Registrant and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit
10.59 to Registration Statement No.
333-00845.
10.52 -- Agreement, dated April 23, 1996, between
the Registrant and Mundipharma Pharma-
ceutical Company. Incorporated herein by
reference to Exhibit 10.60 to Registration
Statement No. 333-00845.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the
period ended June 30, 1996.
<PAGE>
INTERFERON SCIENCES, INC.
JUNE 30, 1996
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, 1996 By: /s/ Lawrence M. Gordon
Lawrence M. Gordon
Chief Executive Officer
DATE: August 14, 1996 By: /s/ Donald W. Anderson
Donald W. Anderson
Controller
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