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 March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________ to _________________
Commission File Number: 0-10379
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 May 2, 1997:
Common Stock 12,285,105 shares
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page No.
Part I. Financial Information:
Consolidated Condensed Balance Sheets--March 31, 1997
and December 31, 1996 1
Consolidated Condensed Statements of Operations--Three
Months Ended March 31, 1997 and 1996 2
Consolidated Condensed Statement of Changes in
Stockholders' Equity--Three Months Ended
March 31, 1997 3
Consolidated Condensed Statements of Cash Flows--Three
Months Ended March 31, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Qualification Relating to Financial Information 10
Part II. Other Information 11
Signatures 12
<PAGE>
PART I. FINANCIAL INFORMATION
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1997 1996
(Unaudited) *
ASSETS ------------ ------------
Current assets
Cash and cash equivalents $ 13,338,237 $ 17,491,955
Accounts and other receivables 399,775 233,037
Inventories 4,816,209 4,328,598
Receivables from NPDC and
affiliated companies, net 98,692 82,902
Prepaid expenses and other
current assets 177,285 162,019
------------ ------------
Total current assets 18,830,198 22,298,511
------------ ------------
Property, plant and equipment,
at cost 12,613,905 12,473,580
Less accumulated depreciation and
amortization (7,693,584) (7,514,747)
------------ ------------
4,920,321 4,958,833
------------ ------------
Intangible assets, net of
amortization 303,954 311,619
Other assets 173,900 173,900
------------ ------------
Total assets $ 24,228,373 $ 27,742,863
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued expenses $ 1,987,753 $ 2,369,032
------------- -------------
Total current liabilities 1,987,753 2,369,032
------------- -------------
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-12,285,105 and
12,276,195 shares 122,851 122,762
Capital in excess of par value 107,447,693 107,396,184
Accumulated deficit (85,329,924) (82,145,115)
------------- -------------
Total stockholders' equity 22,240,620 25,373,831
------------- -------------
Total liabilities and stockholders'
equity $ 24,228,373 $ 27,742,863
============= =============
*The condensed balance sheet as of December 31, 1996 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
March 31,
--------------------------
1997 1996
------------ -----------
Revenues
Sales
Alferon N Injection $ 628,981 $
Research products and other revenues 25,218 5,785
------------ ------------
Total revenues 654,199 5,785
------------ ------------
Costs and expenses
Cost of goods sold and excess/idle
production costs 501,374 781,541
Research and development
(net of $58,749 and $64,746
of rental income received from NPDC) 2,592,088 974,309
General and administrative
(includes $58,125 and $122,105
of payments to NPDC for management
fees and reimbursements of certain
salaries and operating expenses; net
of $79,548 received from NPDC for the
three months ended March 31, 1996 for
reimbursements of certain salaries) 922,435 550,170
------------ ------------
Total costs and expenses 4,015,897 2,306,020
------------ ------------
Loss from operations (3,361,698) (2,300,235)
Interest and other income 176,889 69,035
------------ ------------
Net loss $(3,184,809) $(2,231,200)
============ ============
Net loss per share $ (.26) $ (.26)*
============ ============
Weighted average number of
shares outstanding 12,280,677 8,612,192*
*Restated to reflect the effect of the one-for-four reverse stock
split (see Note 3 to the Consolidated Condensed Financial
Statements).
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
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
Capital Total
Common Stock in excess Accummulated Stockholders'
Shares Amount of par value Deficit Equity
------------------ ------------ ------------ -------------
Balance at
Dec. 31,
1996 12,276,195 $122,762 $107,396,184 $(82,145,115) $25,373,831
Purchase of
fractional shares
of common stock
resulting from
reverse stock
split (106) (1) (632) (633)
Proceeds from
exercise of
common stock
options 9,016 90 52,141 52,231
Net loss (3,184,809) (3,184,809)
----------------------------------------------------------------
Balance at
March 31,
1997 12,285,105 $122,851 $107,447,693 $(85,329,924) $22,240,620
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)
Three Months Ended
March 31,
-----------------------
1997 1996
------------ ------------
Cash flows from operations:
Net loss $(3,184,809) $(2,231,200)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 186,502 190,776
Change in operating assets and liabilities:
Inventories (487,611) (356,696)
Receivables from NPDC and affiliated
companies (15,790) 14,366
Accounts and other receivables (166,738) 23,175
Prepaid expenses and other current
assets (15,266) 26,178
Accounts payable and accrued expenses (381,279) (78,253)
------------ ------------
Net cash used for operations (4,064,991) (2,411,654)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and
equipment (140,325) (113,424)
Additions to intangible and other assets (56,276)
------------ ------------
Net cash used for investing activities (140,325) (169,700)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of common stock
options 52,231
Purchase of fractional shares of common
stock (633)
------------ ------------
Net cash provided by financing activities 51,598
------------ ------------
Net decrease in cash and cash equivalents (4,153,718) (2,581,354)
Cash and cash equivalents at beginning
of period 17,491,955 7,221,108
------------ ------------
Cash and cash equivalents at end of period $13,338,237 $ 4,639,754
============ ============
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 affiliates of The Purdue Frederick
Company (collectively, "Purdue") with respect to ALFERON N
Injection. The Company reacquired from Purdue in 1993 and 1994 all
marketing rights except in the United States and Canada. In May
1996, the Company reacquired the United States and Canadian
marketing rights from Purdue for $3,313,705, which was charged to
expense in the second quarter of 1996.
In connection with the reacquisition of United States and
Canadian marketing rights (i) Purdue 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 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 purchased from Purdue all vials of
ALFERON N Injection and all other assets of Purdue used exclusively
in its ALFERON N Injection business at an aggregate cost of
$206,307.
Note 2. Inventories
Inventories, consisting of material, labor and overhead, are
classified as follows:
March 31, December 31,
1997 1996
-------------- --------------
Finished goods $ 2,127,603 $ 2,563,755
Work in process 1,948,801 1,106,214
Raw materials 739,805 658,629
-------------- --------------
$ 4,816,209 $ 4,328,598
Finished goods inventory consists of vials of ALFERON N
Injection.
Note 3. Reverse Stock Split
On March 21, 1997, the Company's stockholders approved a
proposal to amend the Company's Restated Certificate of
Incorporation to effect a one-for-four reverse stock split of the
Company's Common Stock. The reverse stock split became effective
as of 5:00 PM, New York City time, on March 21, 1997 (the
"Effective Time"). As of March 21, 1997, there were 49,104,779
shares of Common Stock outstanding and after the Effective Time
there were 12,276,089 shares of new Common Stock outstanding.
The par value of the Common Stock did not change as a result
of the reverse stock split. Cash was paid in lieu of fractional
shares based on the last reported sale price of the new Common
Stock on the first trading date after the Effective Time.
The loss per share and average outstanding shares for the
three months ended March 31, 1996 have been restated to reflect the
reverse split as if it had occurred on January 1, 1996.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
As of May 2, 1997, the Company had an aggregate of $11.8
million 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. For the three months ended March 31, 1997, the cash
utilized by the Company's operations was approximately $4.1
million. 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 available at May 2, 1997, will be
sufficient to enable the Company to continue operations for
approximately 14 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.
Results of Operations
For the three months ended March 31, 1997, the Company's
revenues of $654,199 included $628,981 from the sale of ALFERON N
Injection and the balance from sales of research products and other
revenues. Revenues of $5,785 for the three months ended March 31,
1996 were derived from sales of research products. There were no
sales to Purdue during the three months ended March 31, 1996
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 $501,374 and $781,541 for the
three months ended March 31, 1997 and 1996, respectively. There
were no excess/idle production costs in the three months ended
March 31, 1997. The positive gross margin achieved in the three
months ended March 31, 1997 reflects the higher United States
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 a portion of the inventories sold resulting from
write-downs in prior periods. There was no cost of goods sold in
the three months ended March 31, 1996 because there were no sales
of ALFERON N Injection in such period. Excess/idle production
costs in the three months ended March 31, 1996 represented current
production costs in excess of the estimated net realizable value of
the inventory produced.
Research and development expenses during the three months
ended March 31, 1997 of $2,592,088 increased by $1,617,779 from
$974,309 for the same period in 1996, principally because the
Company continued to intensify its level of clinical research on
ALFERON N Injection. The Company received $58,749 and $64,746
during the three months ended March 31, 1997 and 1996,
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 three months
ended March 31, 1997 were $922,435 as compared to $550,170 for the
same period in 1996. The increase of $372,265 was principally due
to increases in payroll, marketing and other operating expenses,
including distribution expenses of $60,000 for ALFERON N Injection
incurred pursuant to the distribution agreement with Purdue which
was entered into in connection with the Company's reacquisition of
marketing rights. NPDC provides certain administrative services
for which the Company paid NPDC $30,000 for each of the three month
periods ended March 31, 1997 and 1996. In addition, for the three
months ended March 31, 1997 and 1996, the Company reimbursed NPDC
zero and $48,750, respectively, for expenses paid by NPDC on behalf
of the Company. For the three months ended March 31, 1997 and
1996, payments to NPDC for the services provided to the Company by
NPDC personnel amounted to $28,125 and $43,355, respectively. For
the three months ended March 31, 1997 and 1996, receipts from NPDC
for the services provided to NPDC by Company personnel amounted to
zero and $79,548, respectively.
Interest and other income for the three months ended March
31, 1997 was $176,889 as compared to $69,035 for the same period in
1996. The increase of $107,854 was due to more funds available for
investment in the current period.
As a result of the foregoing, the Company incurred net
losses of $3,184,809 and $2,231,200 for the three months ended
March 31, 1997 and 1996, respectively.
Recent Tax and Accounting Developments
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128). SFAS No. 128 applies to
entities with publicly held common stock or potential common stock.
SFAS No. 128 simplifies the computation of earnings per share by
replacing the presentation of primary earnings per share with a
presentation of basic earnings per share. It requires dual
presentation of basic and diluted earnings per share by entities
with complex capital structures. Statement No. 128 is effective
for financial statements issued for periods ending after December
15, 1997 and requires restatement of all prior period earnings per
share presented. The Company does not believe the adoption of SFAS
No. 128 will have a material impact on the Company's reported
earnings per share.
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 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
MARCH 31, 1997
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 March 21,
1997, the following matter was voted upon:
Proposal to amend the Company's Restated Certificate of
Incorporation to effect a reverse stock split, pursuant to
which each four shares of issued common stock, par value $.01
per share, of the Company was reclassified and changed into
one share of new common stock, par value $.01 per share, of
the Company, was adopted with a vote of 34,968,680 for,
333,259 against, and 77,172 abstained.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on January 14,
1997, reporting under item 5, Other Events, the Company's
December 1996 private placement transaction.
<PAGE>
INTERFERON SCIENCES, INC.
MARCH 31, 1997
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: May 15, 1997 By: /s/ Lawrence M. Gordon
Lawrence M. Gordon
Chief Executive Officer
DATE: May 15, 1997 By: /s/ Donald W. Anderson
Donald W. Anderson
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000351532
<NAME> INTERFERON SCIENCES INC
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,338,237
<SECURITIES> 0
<RECEIVABLES> 399,775
<ALLOWANCES> 0
<INVENTORY> 4,816,209
<CURRENT-ASSETS> 18,830,198
<PP&E> 12,613,905
<DEPRECIATION> 7,693,584
<TOTAL-ASSETS> 24,228,373
<CURRENT-LIABILITIES> 1,987,753
<BONDS> 0
0
0
<COMMON> 122,851
<OTHER-SE> 22,117,769
<TOTAL-LIABILITY-AND-EQUITY> 24,228,373
<SALES> 654,199
<TOTAL-REVENUES> 654,199
<CGS> 501,374
<TOTAL-COSTS> 501,374
<OTHER-EXPENSES> 3,514,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,184,809)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,184,809)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
