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, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________ to ________________
Commission File Number: 0-10379
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)
(732) 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
July 23, 1998:
Common Stock 15,564,759 shares
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
----
Part I. Financial Information:
Consolidated Condensed Balance Sheets - June 30, 1998
and December 31, 1997 .............................................. 1
Consolidated Condensed Statements of Operations--Three
Months and Six Months Ended June 30, 1998 and 1997 ................. 2-3
Consolidated Condensed Statement of Changes in
Stockholders' Equity--Six Months Ended
June 30, 1998 ...................................................... 4
Consolidated Condensed Statements of Cash Flows--Six
Months Ended June 30, 1998 and 1997 ................................ 5
Notes to Consolidated Condensed Financial Statements ................. 6-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................9-13
Part II. Other Information ............................................. 14
Signatures .............................................................. 15
<PAGE>
<TABLE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited) *
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,675,606 $ 14,059,283
Accounts and other receivables 226,587 989,458
Inventories, net of reserves
of $10,344,551 and $7,254,710 1,780,565 3,332,653
Receivables from GP Strategies
and affiliated companies 21,904
Prepaid expenses and other
current assets 49,058 65,353
------------ -------------
Total current assets 5,731,816 18,468,651
------------ -------------
Property, plant and equipment,
at cost 13,687,068 13,496,755
Less accumulated depreciation (8,697,861) (8,266,892)
------------ -------------
4,989,207 5,229,863
------------ -------------
Patent costs, net of accumulated
amortization 265,632 280,962
Other assets 148,900 173,900
------------ -------------
Total assets $11,135,555 $ 24,153,376
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and
accrued expenses $ 3,309,814 $ 3,939,736
Amount due GP Strategies and
affiliated companies 14,608
------------ -------------
Total current liabilities 3,324,422 3,939,736
------------ -------------
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-15,262,753 and
15,210,405 shares 152,628 152,104
Capital in excess of par value 124,159,642 123,946,331
Accumulated deficit (116,501,137) (103,884,795)
------------- -------------
Total stockholders' equity 7,811,133 20,213,640
------------- -------------
Total liabilities and stockholders'
equity $ 11,135,555 $ 24,153,376
============= =============
</TABLE>
*The consolidated condensed balance sheet as of December 31, 1997 has been
summarized from the Company's audited balance sheet as of that date.
The accompanying notes are an integral part of these consolidated
condensedfinancial statements.
<PAGE>
<TABLE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
-----------------------------
1998 1997
------------- ------------
<S> <C> <C>
Revenues
Alferon N Injection $ 206,443 $ 759,139
Research products and other revenues 12,101 1,902
----------- -----------
Total revenues 218,544 761,041
----------- -----------
Costs and expenses
Cost of goods sold and idle
production costs 2,576,417 603,268
Research and development
(net of zero and $58,749 of rental
income received from GP Strategies) 2,162,871 3,135,447
General and administrative
(includes $30,000 and $58,125
of payments to GP Strategies for
management fees and reimbursements of
certain salaries; net of $6,250
received from GP Strategies for the
three months ended June 30, 1998 for
reimbursements of certain salaries) 1,078,189 1,147,703
----------- ------------
Total costs and expenses 5,817,477 4,886,418
----------- ------------
Loss from operations (5,598,933) (4,125,377)
Interest income 66,125 130,645
----------- ------------
Net loss $(5,532,808) $(3,994,732)
============ ============
Basic and diluted loss per share $ (.36) $ (.33)
============ ============
Weighted average number of
shares outstanding 15,245,554 12,285,105
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
<TABLE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1998 1997
------------- ------------
<S> <C> <C>
Revenues
Alferon N Injection $ 458,966 $ 1,388,120
Research products and other revenues 89,126 27,120
------------- -------------
Total revenues 548,092 1,415,240
------------- -------------
Costs and expenses
Cost of goods sold and idle
production costs 2,779,803 1,104,642
Provision for excess inventory 3,089,841
Research and development
(net of $29,375 and $117,498
of rental income received from
GP Strategies) 4,218,010 5,727,535
General and administrative
(includes $60,000 and $116,250 of
payments to GP Strategies for
management fees and reimbursements
of certain salaries; net of $12,500
received from GP Strategies for the
six months ended June 30, 1998 for
reimbursements of certain salaries) 2,550,588 2,070,138
------------- -------------
Total costs and expenses 12,638,242 8,902,315
------------- -------------
Loss from operations
(12,090,150) (7,487,075)
Interest income 210,845 307,534
Loss on repurchase of
preferred stock (737,037)
------------- --------------
Net loss $(12,616,342) $ (7,179,541)
============= ==============
Basic and diluted loss per share $ (.83) $ (.58)
============= ==============
Weighted average number of
shares outstanding 15,236,114 12,282,574
</TABLE>
The accompanying notes are an integral part of these consolidated
condensedfinancial statements.
<PAGE>
<TABLE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<CAPTION>
Capital Total
Common Stock in excess Accummulated Stockholders'
Shares Amount of par value Deficit Equity
------ ------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at
Dec. 31,
1997 15,210,405 $ 152,104 $ 123,946,331 $ (103,884,795) $ 20,213,640
Common stock
issued as
compensation 16,191 162 116,735 116,897
Common stock
issued under
Company 401(k)
Plan 36,157 362 96,576 96,938
Net loss (12,616,342) (12,616,342)
-------------------------------------------------------------------------------------------
Balance at
June 30,
1998 15,262,753 $ 152,628 $ 124,159,642 $ (116,501,137) $ 7,811,133
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
--------------------------------
<S> <C> <C>
Cash flows from operations:
Net loss $ (12,616,342) $ (7,179,541)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 446,299 374,668
Compensation and benefits paid
with common stock 213,835
Provision for excess inventory 3,089,841
Change in operating assets and liabilities:
Inventories (1,537,753) (1,800,625)
Receivables from GP Strategies and
affiliated companies 36,512 19,386
Accounts and other receivables 762,871 (575,506)
Prepaid expenses and other current assets 16,295 33,282
Accounts payable and accrued expenses (629,922) 116,409
Loss on repurchase of preferred stock 737,037
-------------- -------------
Net cash used for operations (9,481,327) (9,011,927)
-------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (190,313) (331,767)
Reductions to other assets 25,000
-------------- -------------
Net cash used for investing activities (165,313) (331,767)
-------------- -------------
Cash flows from financing activities:
Net proceeds from preferred stock offering 7,179,000
Repurchase of preferred stock (7,916,037)
Proceeds from exercise of common stock
options 52,231
Purchase of fractional shares of common
stock (633)
--------------- -------------
Net cash (used for) provided by financing
activities (737,037) 51,598
--------------- -------------
Net decrease in cash and cash equivalents (10,383,677) (9,292,096)
Cash and cash equivalents at beginning
of period 14,059,283 17,491,955
--------------- -------------
Cash and cash equivalents at end of period $ 3,675,606 $ 8,199,859
=============== ==============
</TABLE>
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. Basis of Presentation
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.
Note 2. Earnings per Share
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), as required, and restated the previously reported earnings per share in
conformity with SFAS 128. The Company does have potential Common Stock, in the
form of options and warrants, that would be dilutive if the Company had
earnings.
Note 3. Inventories
Inventories, consisting of material, labor and overhead, are classified as
follows:
June 30, December 31,
1998 1997
-------------- --------------
Finished goods $ 4,365,439 $ 3,720,000
Work in process 6,516,092 5,621,714
Raw materials 1,243,585 1,245,649
Less reserve for excess
inventory (10,344,551) (7,254,710)
------------ ------------
$ 1,780,565 $ 3,332,653
============ ============
Finished goods inventory consists of vials of ALFERON N Injection,
available for commercial and clinical use either immediately or upon final
release by Quality Assurance.
In light of the results to date of the Company's phase 3 studies of ALFERON
N Injection in HIV and HCV-infected patients, the Company has written-down the
carrying value of its inventory of ALFERON N Injection to its estimated net
realizable value. The write-down was the result of the Company's reassessment of
anticipated near-term needs for product to be sold or utilized in clinical
trials (within approximately a two-year period based on historical sales
levels). As a result, inventories at December 31, 1997 reflect a reserve for
excess inventory of $7,254,710. Also, during the quarter ended March 31, 1998,
the Company recorded an additional write-off of $3,089,841 of inventories that
were produced during the three months ended March 31, 1998.
Note 4. Preferred Stock
On February 5, 1998, the Company completed the sale of 7,500 shares of
Series A Convertible Preferred Stock to an institutional investor for an
aggregate amount of $7,500,000. The $7,179,000 of net proceeds were expected to
augment the Company's working capital while awaiting the results of the two
Phase 3 clinical trials of ALFERON N Injection for the treatment of HIV-infected
and hepatitis C patients. After considering the reaction of the Company's
stockholders to the issuance and the negative impact the issuance apparently had
on the Company's market capitalization, the Board of Directors determined on
February 13, 1998 to exercise an option to repurchase the shares of Convertible
Preferred Stock for $7,894,737 (plus accrued dividends). The net loss to the
Company on the repurchase of the Preferred Stock amounted to $737,037 and was
recorded on the income statement under the caption of loss on repurchase of
preferred stock for the quarter ended March 31, 1998.
Note 5. Operations and Liquidity
The Company has experienced significant operating losses since its
inception in 1980. As of June 30, 1998, the Company had an accumulated deficit
of approximately $116.5 million. For the six months ended June 30, 1998 and the
years ended December 31, 1997, 1996 and 1995, the Company had losses from
operations of approximately $12.1 million, $22.4 million, $12.4 million and $7.4
million, respectively. Although the Company received FDA approval in October
1989 to market ALFERON N Injection in the United States for the treatment of
certain genital warts and ALFERON N Injection currently is marketed and sold in
the United States by the Company, in Mexico by Industria Farmaceutica Andromaco,
S.A. De C.V. and in Germany by Cell Pharm GmbH ("Cell Pharm"), the Company has
had limited revenues from the sale of ALFERON N Injection to date. For the
Company to operate profitably, the Company must sell significantly more ALFERON
N Injection. Increased sales will depend primarily upon the expansion of
existing markets and/or successful attainment of FDA approval to market ALFERON
N Injection for additional indications, of which there can be no assurance.
There can be no assurance that sufficient quantities of ALFERON N Injection will
be sold to allow the Company to operate profitably.
The Company has limited financial resources as of June 30, 1998 with which
to support future operating activities and to satisfy its financial obligations
as they become payable. Consequently, management is continuing to actively
pursue raising additional capital by either (i) issuing securities in a public
or private equity offering, (ii) licensing the rights to its injectable, topical
or oral formulations of alpha interferon, or (iii) entering into collaborative
or other arrangements with corporate partners. Insufficient funds will require
the Company to further delay, scale back, or eliminate certain or all of its
activities or to license third parties to commercialize products or technologies
that the Company would otherwise seek to develop itself. In addition, the
Company hopes to renegotiate the minimum purchase commitment for white blood
cells discussed in Management's Discussion and Analysis of Financial Condition
and Liquidity, but if it is unable to do so such obligation may have a material
adverse effect on the financial condition of the Company.
Based on the Company's estimates of revenues, expenses and levels of
production, management believes that the cash available will be sufficient to
enable the Company to continue operations through approximately October 1998.
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.
<PAGE>
INTERFERON SCIENCES, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
As of July 27, 1998, the Company had an aggregate of $3.1 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 pre-clinical and clinical testing and to market its products. For the six
months ended June 30, 1998, the cash utilized by the Company's operations was
approximately $9.5 million of which increases in inventories accounted for
approximately $1.5 million. The Company had continued to increase its investment
in inventories of ALFERON N Injection to meet anticipated increases in market
demand, for use in the Company-sponsored Phase 3 and Phase 2 clinical trials,
and so that inventory would be available in the event ALFERON N Injection was
subsequently approved for the treatment of HIV or hepatitis C or both by the
U.S. Food and Drug Administration. In light of the results to date of the
Company's Phase 3 studies of ALFERON N Injection in HIV- and HCV-infected
patients, the Company has determined that it has enough inventory on hand to
satisfy its clinical and commercial needs for the foreseeable future and
therefore discontinued production of ALFERON N Injection in April 1998. The
Company currently obtains human white blood cells used in the manufacture of
ALFERON N Injection from several sources, including the American Red Cross
pursuant to a supply agreement dated April 1, 1997. The Company will not need
more human white blood cells until such time as production of ALFERON N
Injection is resumed. Under the terms of the agreement with the American Red
Cross, the Company is obligated to purchase a minimum number of human white
blood cells each month through March 1999. The aggregate commitment is
approximately $260,000 per month. The Company hopes to renegotiate the minimum
purchase commitment, but if it is unable to do so such obligation may have a
material adverse effect on the financial condition of the Company. 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 pre-clinical 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; and the ability of
the Company to establish collaborative arrangements and effective
commercialization activities and arrangements.
The Company anticipates that the cash that will be utilized by the
Company's operations in 1998 will be significantly less than in 1997 as a result
of the discontinuance in April 1998 of manufacturing, the conclusion in 1998 of
the Company's Phase 3 studies of ALFERON N Injection in HIV- and HCV-infected
patients, and certain other cost reductions instituted in 1998 by the Company,
offset in part by the expenses associated with the HIV and hepatitis C
co-infection study that commenced in December 1997. Based on the Company's
estimates of revenues, expenses, and levels of production, management believes
that the cash presently available will be sufficient to enable the Company to
continue operations through approximately October 1998. 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 further 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. The Independent Auditors' Report dated
April 2, 1998 on the Company's consolidated financial statements ended December
31, 1997 notes that the Company has suffered recurring losses from operations
and has an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern.
Results of Operations
Six Months Ended June 30, 1998 Versus Six Months Ended June 30, 1997
For the six months ended June 30, 1998, the Company's revenues of $548,092
included $458,966 from the sale of ALFERON N Injection and the balance from
sales of research products and other revenues. Revenues of $1,415,240 for the
six months ended June 30, 1997 included $1,388,120 from the sale of ALFERON N
Injection and the balance from sales of research products. Cost of goods sold
and idle production costs totaled $2,779,803 and $1,104,642 for the six months
ended June 30, 1998 and 1997, respectively. Idle production costs in the six
months ended June 30, 1998 primarily represented fixed production costs, which
were incurred after production of ALFERON N Injection was discontinued in April
1998. There were no idle production costs in the six months ended June 30, 1997.
In May 1997, the Company appointed Alternate Site Distributors, Inc.
("ASD"), a wholly owned subsidiary of Bergen Brunswig Corporation, the sole
United States distributor of ALFERON N Injection. Under the agreement with ASD,
the Company sold vials to ASD, which then resold them to the marketplace. As a
result, the Company recognized revenues when it sold vials to ASD, rather than
when ASD resold them to the marketplace. In June 1998, the Company replaced ASD
with Integrated Commercialization Solutions ("ICS"), another subsidiary of
Bergen Brunswig Corporation better able to handle the Company's specialty
distribution requirements. Under the new agreement, vials are not sold to ICS,
but are instead sold by the Company directly to the marketplace, at which time
revenues are recognized by the Company. In the six months ended June 30, 1998,
ASD and the Company sold to wholesalers and other customers in the United States
6,937 vials of ALFERON N Injection, compared to 7,074 vials sold by ASD and the
Company during the six months ended June 30, 1997. Notwithstanding the only
slight decrease in vials sold, the Company's revenues from the sale of ALFERON N
Injection decreased by $929,154, a 66.9% decline, in the six months ended June
30, 1998 compared to the six months ended June 30, 1997. This decrease was due
primarily to (i) ASD's sales in the 1998 period were primarily from ASD's
inventory (and therefore had been accounted for as revenues by the Company in
1997), (ii) the Company's revenues in the 1997 period included sales to ASD for
its inventory, and (iii) a decrease in foreign sales in the 1998 period.
In light of the results to date of the Company's Phase 3 studies of ALFERON
N Injection in HIV- and HCV-infected patients, the Company has written-down the
carrying value of its inventory of ALFERON N Injection to its estimated net
realizable value. The write-down was the result of the Company's reassessment of
anticipated near-term needs for product to be sold or utilized in clinical
trials (within approximately a two-year period based on historical sales
levels). As a result, during the three months ended March 31, 1998, the Company
recorded an inventory write-off of $3,089,841 in addition to the $7,254,710
inventory write-down which was recorded at December 31, 1997.
Research and development expenses during the six months ended June 30, 1998
of $4,218,010 decreased by $1,509,525 from $5,727,535 for the same period in
1997, principally because the Company has nearly concluded its Phase 3 clinical
studies of ALFERON N Injection in HIV- and HCV-infected patients. The Company
received $29,375 and $117,498, respectively, as rental income from GP Strategies
Corporation ("GP Strategies") 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, 1998
were $2,550,588 as compared to $2,070,138 for the same period in 1997. The
increase of $480,450 was principally due to increases in payroll and other
operating expenses. GP Strategies provides certain administrative services for
which the Company paid GP Strategies $60,000 for each of the six-month periods
ended June 30, 1998 and 1997. In addition, for the six months ended June 30,
1998 and 1997, payments to GP Strategies for services provided to the Company by
GP Strategies personnel amounted to zero and $56,250, respectively. For the six
months ended June 30, 1998 and 1997, receipts from GP Strategies for services
provided to GP Strategies by Company personnel amounted to $12,500 and zero,
respectively.
On February 5, 1998, the Company completed the sale of 7,500 shares of
Series A Convertible Preferred Stock to an institutional investor for an
aggregate amount of $7,500,000. The $7,179,000 of net proceeds were expected to
augment the Company's working capital while awaiting the results of the two
Phase 3 clinical trials of ALFERON N Injection for the treatment of HIV-infected
and hepatitis C patients. After considering the reaction of the Company's
stockholders to the issuance and the negative impact the issuance apparently had
on the Company's market capitalization, the Board of Directors determined on
February 13, 1998 to exercise an option to repurchase the shares of Convertible
Preferred Stock for $7,894,737 (plus accrued dividends). The net loss to the
Company on the repurchase of the Preferred Stock amounted to $737,037 and was
recorded on the income statement under the caption of loss on repurchase of
preferred stock for the quarter ended March 31, 1998.
Interest income for the six months ended June 30, 1998 was $210,845 as
compared to $307,534 for the same period in 1997. The decrease of $96,689 was
due to less funds available for investment in the current period.
As a result of the foregoing, the Company incurred net losses of
$12,616,342 and $7,179,541 for the six months ended June 30, 1998 and 1997,
respectively.
Three Months Ended June 30, 1998 Versus Three Months Ended June 30, 1997
For the three months ended June 30, 1998, the Company's revenues of
$218,544 included $206,443 from the sale of ALFERON N Injection and the balance
from sales of research products and other revenues. Revenues of $761,041 for the
three months ended June 30, 1997 included $759,139 from the sale of ALFERON N
Injection and the balance from sales of research products. Cost of goods sold
and idle production costs totaled $2,576,417 and $603,268 for the three months
ended June 30, 1998 and 1997, respectively. Idle production costs in the three
months ended June 30, 1998 primarily represented fixed production costs, which
were incurred after production of ALFERON N Injection was discontinued in April
1998. There were no idle production costs in the three months ended June 30,
1997.
In the three months ended June 30, 1998, ASD and the Company sold to
wholesalers and other customers in the United States 2,613 vials of ALFERON N
Injection, compared to 3,991 vials sold by ASD and the Company during the three
months ended June 30, 1997, a 34.5% decline. The Company's revenues from the
sale of ALFERON N Injection decreased by $552,696, a 72.8% decline, in the three
months ended June 30, 1998 compared to the three months ended June 30, 1997.
This percentage decline was greater than the percentage decline in vials sold
primarily due to the facts that ASD's sales in the 1998 period were primarily
from ASD's inventory and the Company's sales in the 1997 period included sales
to ASD for its inventory.
Research and development expenses during the three months ended June 30,
1998 of $2,162,871 decreased by $972,576 from $3,135,447 for the same period in
1997, principally because the Company has nearly concluded its Phase 3 clinical
studies of ALFERON N Injection in HIV- and HCV-infected patients. The Company
received zero and $58,749, respectively, as rental income from GP Strategies 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 June 30,
1998 were $1,078,189 as compared to $1,147,703 for the same period in 1997. The
decrease of $69,514 was principally due to decreases in marketing expenses. GP
Strategies provides certain administrative services for which the Company paid
GP Strategies $30,000 for each of the three-month periods ended June 30, 1998
and 1997. For the three months ended June 30, 1998 and 1997, payments to GP
Strategies for the services provided to the Company by GP Strategies personnel
amounted to zero and $28,125, respectively. For the three months ended June 30,
1998 and 1997, receipts from GP Strategies for the services provided to GP
Strategies by Company personnel amounted to $6,250 and zero, respectively.
Interest income for the three months ended June 30, 1998 was $66,125 as
compared to $130,645 for the same period in 1997. The decrease of $64,520 was
due to less funds available for investment in the current period.
As a result of the foregoing, the Company incurred net losses of $5,532,808
and $3,994,732 for the three months ended June 30, 1998 and 1997, respectively.
Recent Tax and Accounting Developments
The Financial Accounting Standards Board issued Accounting Standards (SFAS
130),"Reporting Comprehensive Income", in June 1997 which requires a statement
of comprehensive income to be included in the financial statements for fiscal
years beginning after December 15, 1997. The Company has adopted this Statement
and has no other comprehensive income, other than net income, therefore
comprehensive income is the same as net income (loss).
In addition, in June of 1997, the FASB issued SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 requires disclosure
of certain information about operating segments and about products and services,
geographic areas in which a company operates, and their major customers. The
Company is presently in the process of evaluating the effect that this new
standard will have on disclosures in the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company will adopt SFAS No. 133 by
January 1, 2000. The Company is currently evaluating whether the adoption of
SFAS No. 133 will have a material impact on the consolidated financial
statements.
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, the risk that the
Company will run out of cash; 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
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed for the period ended
June 30, 1998.
<PAGE>
INTERFERON SCIENCES, INC.
JUNE 30, 1998
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, 1998 By: /s/ Lawrence M. Gordon
-----------------------
Lawrence M. Gordon
Chief Executive Officer
DATE: August 14, 1998 By: /s/ Donald W. Anderson
----------------------
Donald W. Anderson
Controller
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