Page 14 of 14
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period 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 0-15070
Alpha 1 Biomedicals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1253406
(State or other jurisdiction of (I.R.S. Employer
Identification Number)
incorporation or organization)
6707 Democracy Boulevard
Suite 111
Bethesda, MD 20817-1129
(Address of principal executive offices, including zip code)
(301) 564-4400
(Registrants 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
As of July 31, 1996, 9,102,429 shares of the registrant's
common stock, par value $.001 per share, were issued and
outstanding.
ALPHA 1 BIOMEDICALS, INC.
FORM 10-Q
QUARTER ENDED June 30, 1996
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at June 30, 1996
(unaudited) and December 31, 1995
(audited) 3
Statements of Operations for the three-
month period ended June 30, 1996
and six-month period ended June 30,
1996 and 1995 4
Statements of Cash Flows for the six-
month period ended June 30, 1996 and
1995 (unaudited) 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Part I. Financial Information
ALPHA 1 BIOMEDICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Alpha 1 Biomedicals, Inc. (the "Company"), a Delaware
corporation, was incorporated in 1982. The Company has operated
predominantly in a single industry segment, the biotechnology
industry. Its activities have consisted of researching and
developing new pharmaceutical products for the treatment of
diseases or conditions that arise as a result of immune system
disorders, including chronic viral infections, cancer and
autoimmune disease.
In December 1994, the Company reached a decision to focus its
development efforts on Thymosin beta 4, a chemically synthesized
copy of a natural hormone-like peptide that has shown promise in
animal testing and laboratory studies as a treatment for cystic
fibrosis, adult respiratory distress syndrome, chronic bronchitis
and sepsis. The Company, in February 1996, took action to delay
its development program for Thymosin beta 4. No products of the
Company have received regulatory approval.
The Company has not generated significant revenues from
operations and does not anticipate generating product revenues for
the foreseeable future. The Company will require substantial
funding in order to conduct further research and development
activities and to manufacture and market the products which the
Company intends to develop. Management plans include strategic
alliances or other partnership arrangements with entities
interested in and with resources to develop Thymosin beta 4, or
other business transactions which would allow the Company to
generate resources to assure continuation of the Company's
operations.
Cash and short-term investment balances at June 30, 1996
total $42,081. This amount, based on the Company's commitments,
is insufficient to satisfy current requirements. During February
1996, the Board of Directors approved a plan which provides for
termination of all ongoing research and development activities, a
reduction of leased space, a reduction of certain salaries and the
severance of administrative staff. Management believes that
significant revenue may be generated under a license agreement
with SciClone Pharmaceuticals, Inc. ("SciClone"), which provides
for the Company to receive royalty revenues from the sale of
SciClone's product, Zadaxin, Thymosin alpha 1. The Company has
entered into letter agreements with major vendors regarding the
deferral of approximately $1,400,000 in payments that are due in
exchange for a commitment to the vendors that payments will be
made by the Company from future royalties to be received under the
SciClone license agreement until the full amount of the
liabilities have been liquidated or sooner if sufficient funding
is obtained. Subsequent to June 30, 1996, the Company entered
into an agreement with SciClone, whereby the Company may receive
up to $500,000 in prepayment of royalties that would be due from
future sales of Zadaxin, Thymosin alpha 1. The agreement provides
that after royalty payments totaling $1.75 million have been made,
the Company will forgo future royalties, if and when earned, equal
to five times the amount of prepayment. However, existing
financial resources will likely be exhausted before any such
revenues are realized.
Under the recent agreement with SciClone, the Company has received
a payment of $250,000. This amount will provide funding to enable
the Company to continue its efforts to identify sources of
financing that would enable the Company to continue its
operations. An additional payment of up to $250,000 may be
provided during the fourth quarter of the calendar year 1996 under
the agreement with SciClone. In the event that substantial
funding is not obtained, management estimates that the Company's
current financial resources will fund operations, on a scaled-down
basis, to the fourth quarter of 1996. However, if additional
financing cannot be obtained, the Company will likely be forced to
discontinue operations.
Should the Company obtain additional funding, other factors
relating to competition, dependence on third parties, uncertainty
regarding patents, protection of proprietary rights, manufacturing
of peptides and technology obsolescence could have a significant
impact on the Company and its operations.
Financial Statements
The Balance Sheets as of June 30, 1996 and December 31,
1995, the Statement of Operations for the three-month and six-
month periods ended June 30, 1996 and 1995, and the Statements of
Cash Flows for the six-month periods ended June 30, 1996 and
1995, have been prepared without audit. In the opinion of the
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position
at June 30, 1996 and the results of operations and changes in
cash flows for such period have been made. Certain information
and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
December 31, 1995 audited financial statements. The results of
operations for the three-month and six-month periods ended June
30, 1996, are not necessarily indicative of the operating results
for the full year.
ALPHA 1 BIOMEDICALS, INC.
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations for the Three-Month Period Ended June 30,
1996
Compared to the Three-Month Period Ended June 30, 1995
Revenues. Revenues for the three-month period ended June
30, 1996 were $3,783 as compared to $34,852 during the comparable
period a year earlier. Current period revenues consisted of a
royalty payment whereas revenues in the comparable period a year
earlier consisted solely of payments under a consulting
agreement.
Expenses. Expenses for the three-month period ended June
30, 1996 were $382,495, a decrease of $569,824 from the
comparable period a year earlier. Research and development
expenses during the current period were $125,116, a decrease of
$142,504 from the comparable period a year earlier. The decrease
was primarily attributable to an expense reduction program which
resulted in reduced: 1) compensation, 2) research material
purchases; and 3) contribution to a Company-funded research
grant. General and administrative expenses during the current
period were $257,379, a decrease from the comparable period a
year earlier of $427,320. The decrease primarily reflected the
effect of a reduction in expense from that recorded in the prior
period a year earlier for the estimated cost of the settlement of
a class action suit and related legal expenses. Additionally,
the current period reflects the effect of proprietary rights
becoming fully amortized at March 31, 1996 and the elimination of
current period expense.
Other Items. Other income (expense) during the current
three-month period totaled $2,803, a decrease of $54,900 from the
comparable period a year earlier. The decrease reflects prior
period net effect of increases in the market value of short term
investments offset by advances to Viral Technologies, Inc.
("VTI"), a joint venture investment. Current period income
reflects interest income on decreased short term investment
balances.
During the last quarter of fiscal 1995, the Company sold its
50% interest in VTI to CEL-SCI Corporation ("CEL-SCI") and
accordingly, the Company did not provide funds to VTI for
operating expenses during the current three- or six-month
periods.
Interest expense for the current three-month period reflects
expense as calculated under the terms of the letter agreements
with certain major vendors which were initiated during the
current fiscal year.
Results of Operations for the Six-Month Period Ended June 30,
1996 Compared to the Six-Month Period Ended June 30, 1995.
Revenue. Revenues for the six-month period ended June 30, 1996
were $12,071 as compared to $45,894 during the comparable period
a year earlier. Current period revenues consisted of $8,071 in
royalty payments and $4,000 in consulting fees, whereas revenues
in the comparable period a year earlier consisted solely of
payments under a consulting agreement.
Expenses. Expenses for the six-month period ended June 30, 1996
were $1,400,942, a decrease of $466,662 from the comparable
period a year earlier. Research and development expenses during
the current period were $912,644, an increase of $295,457 over
the comparable period a year earlier. The increase primarily
reflects the net effect of increased expenses associated with the
purchase of Thymosin beta 4 material and costs incurred in the
conduct of preclinical studies offset by reduced compensation and
contributions to a Company-funded research grant, and as a result
of an expense reduction program initiated in the current period.
General and administrative expenses during the current period
were $488,298, a decrease of $762,119 from the comparable period
a year earlier. The decrease was primarily the result of 1)
decreased facility cost and related expense as a result of the
closing of the Sunnyvale, California facility during March 1995
and subsequent assignment of the lease; 2) decreased legal
expense during the current period; 3) a decrease in expense as a
result of proprietary right becoming fully amortized; and 4) an
adjustment reflecting a decrease in the market value assigned at
December 31, 1995 to the shares of Common Stock that the Company
will issue in settlement of the class action suit. See Part II,
Item 1, Legal Proceedings.
Other Items. Other income (expense) for the six-month period
June 30, 1996 reflects a net expense of $27,626. This total
reflects a loss of $34,028 recorded for the change in the market
value of the balance of CEL-SCI common stock received by the
Company in consideration for the sale of the Company's interest
in VTI in fiscal 1995, offset by $6,402 in interest income from
short term investments. Other income (expense) for the six-month
period ended June 30, 1996, consisted primarily of increases in
the market value and interest earnings on short term investments,
$206,285, and by payments to VTI, the Company's former joint
venture investment, totaling $143,406.
Interest expense for the current six-month period totaled
$63,472, representing amounts due under the terms of the letter
agreements with certain major vendors.
Capital Resources and Liquidity
Since its inception in 1982, the Company's efforts have been
directed toward conducting research and development, sponsoring
clinical trials of its proprietary products, the construction and
equipping of laboratory and production facilities, and the
manufacture of product for research, testing and clinical trials.
The Company's accumulated deficit of $37,104,439 through June 30,
1996 has been primarily funded by the proceeds from the issuance
of equity securities (and interest earned on such funds), the
licensing of technology developed or acquired by the Company and
limited product sales.
During the first six months of 1996, revenues consisted of
consulting services and royalty income from SciClone
Pharmaceuticals, Inc. ("SciClone"). These revenue sources are
substantially below the level required to cover fully the
Company's expenses or to provide adequate cash flow. The Company
currently has no other revenue-generating sources. Although the
Company believes that royalty income from product sales of
Thymosin alpha 1 by SciClone could be significant in the future,
existing financial resources will likely be exhausted before any
such revenues are realized. Subsequent to June 30, 1996, the
Company entered into an agreement with SciClone, whereby the
Company may receive up to $500,000 in prepayment of royalties
that may be due from future sales of SciClone's product, Zadaxin,
Thymosin alpha 1. The agreement provides that after royalty
payments totaling $1.75 million have been made, the Company will
forgo future royalties, if and when earned, equal to five times
the amount of prepayment. The Company currently believes, based
on its existing resources, that it will have sufficient cash to
sustain its operations to the fourth quarter of 1996. If
additional financing cannot be obtained prior to that time, the
Company will likely be forced to discontinue operations.
Since 1994, the Company has undertaken a cost reduction
program including the approval by the Board of Directors during
February 1996, of a plan which provides for termination of all
ongoing research and development activities, a reduction of
leased space, a reduction of certain salaries and the severance
of administrative staff. As a result, the Company has reduced
staffing levels from 29 employees to its current three employees
and has closed all facilities except for its headquarters space.
During April 1996, the Company further reduced costs by
subletting its headquarters and relocating to more economical
office space.
Following the licensing to SciClone of additional rights to
Thymosin alpha 1 in 1994, the Company in 1995 refocused its
research efforts to Thymosin beta 4. Research activities and pre-
clinical studies were initiated and accelerated based on
anticipated cash resources that the Company expected to realize
from a proposed merger. In anticipation of the merger and the
cash that was to become available, the Company commenced placing
orders for the conduct of research studies and for the purchase of
Thymosin beta 4 material totaling $2,704,000. In January 1996,
the Company learned of the issuance of a U.S. patent that could
block the commercialization of Thymosin beta 4 as a mucolytic for
the treatment for cystic fibrosis. Thereafter, the merger
agreement was terminated by mutual agreement. The Company has
delayed its development program for Thymosin beta 4, and has no
products that have received regulatory approval. The Company has
not generated significant revenues from operations and does not
anticipate generating product revenues for the foreseeable future.
The Company will require substantial funding in order to conduct
further research and development activities and to manufacture and
market the products which the Company intends to develop.
Management plans to continue to investigate the possibility
of strategic alliances or other partnership arrangements with
entities interested in and with resources to develop Thymosin
beta 4, or other business transactions which would allow the
Company to generate resources to assure continuation of the
Company's operations. However, there is no assurance that any
such transaction can be completed.
As a result of the termination of research and development
activities, the Company canceled its research orders with certain
vendors. The Company was able to cancel $1,204,000 of work not
yet performed on outstanding orders of $2,704,000. Management
has also entered into letter agreements with these major vendors
which defer the remaining payments of approximately $1.4 million
that are due in exchange for a commitment to the vendors of
revenues received by the Company in the future under the SciClone
license agreement until the full amounts of the liabilities have
been liquidated. In the event that sufficient funding is
obtained for the Thymosin beta 4 program, all amounts then due
would become payable immediately. If substantial funding is not
obtained, management estimates that the Company's financial
resources would fund operations, on a substantially scaled-down
basis, to the fourth quarter of 1996.
The effect of inflation and changing prices on the continuing
operations of the Company is not expected to be significant.
ALPHA 1 BIOMEDICALS, INC.
Part II - Other Information
Item 1. Legal Proceedings
On April 29, 1994, a suit was filed in United States
District Court for the District of Maryland against the Company,
Dr. Allan Goldstein and Dr. Vincent F. Simmon, the Company's
former President and Chief Executive Officer. The named
plaintiff in the suit was Schulman, Rogers, Gandal, Pordy &
Ecker, P.A. The suit, as to which the plaintiff sought
certification as a class action, alleged that during the period
May 11, 1993, through April 27, 1994, the Company and certain of
its officers made or are responsible for certain false or
misleading public statements regarding the Company, Thymosin
alpha 1, the results of Thymosin alpha 1 in the treatment of
chronic hepatitis B, and the prospects for success of Thymosin
alpha 1 in clinical trials and the impact on the Company. The
complaint contended that these alleged misleading statements
violated Section 10(b) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 thereunder. The complaint further alleged
that Dr. Goldstein and Dr. Simmon are liable for such statements
by reason of their status as controlling persons of the Company.
On May 26, 1994, a second suit was filed in the United States
District Court for the District of Maryland by Harry T. Cole
against the Company, Dr. Goldstein and Dr. Simmon. This suit,
which also sought certification as a class action, alleged
violations of Rule 10b-5, negligent representations and control
person liability based on substantially the same facts alleged in
the Schulman complaint. On May 27, 1994, a suit was filed in the
United States District Court for the District of Maryland by
Allison and Sidney Formal against the Company, Dr. Goldstein and
Dr. Simmon. The allegations and the relief sought in this suit
were identical to those in the Schulman complaint. The three
suits have been consolidated as a single action captioned In re
Alpha 1 Biomedicals, Inc. Securities Litigation. In a
consolidated amended complaint, the plaintiffs expanded their
claims to include the allegation that the Company made false or
misleading public statements concerning its ability to satisfy
its contractual obligation to supply product to SciClone. On
March 13, 1995, the District Court issued an order dismissing all
but one of the claims. While the Company believed that the
remaining claim was without merit, it entered into the settlement
agreement to avoid the continuing cost of litigation. On
September 26, 1995, the parties filed a Stipulation of Settlement
with the District Court under which the Company would issue
500,000 shares of its common stock and make a payment in
settlement of the remaining claim. The settlement was approved
by the District Court on April 8, 1996.
In March 1996, a complaint was filed against the Company by a
former employee in the Circuit Court of Montgomery County,
Maryland, alleging discrimination in employment, wrongful
termination and breach of contract. At the request of the
Company, the case was moved to the U.S. District Court for the
Maryland Southern District. In July 1996, the parties entered
into a Stipulation of Dismissal in settlement of the suit.
In March 1996, a complaint against the Company was filed by
a former consultant to the Company in the Circuit Court for Wayne
County, Michigan, alleging negligence, fraud, statutory
indemnification and detrimental reliance. The plaintiff was
seeking legal expenses and related costs associated with the
investigation of the consultant by the Securities and Exchange
Commission. On July 19, 1996, the complaint was dismissed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on From 8-K. No reports on Form 8-K were
filed during the quarter ended 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
on its behalf by the undersigned thereunto duly authorized.
Alpha 1 Biomedicals, Inc.
(Registrant)
Date: August 14, 1996 By: /s/ R.J. Lanham
R.J. Lanham
Vice President and
Chief Financial Officer
ALPHA 1 BIOMEDICALS, INC.
BALANCE SHEETS
June 30, December 31,
1996 1995
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 42,081 $ 546,797
Short term investments - 284,538
Prepaid insurance 72,185 130,951
Other current assets 11,934 15,753
Total current assets 126,200 978,039
Fixed assets, net 10,445 59,530
Proprietary rights, net - 64,672
Due from related party 72,794 80,596
Other assets 15,831 14,610
Total assets $ 225,270 $ 1,197,447
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,421,979 $ 258,051
Accrued expenses 285,464 976,600
Total current liabilities 1,707,443 1,234,651
Long-term liabilities - -
Total liabilities 1,707,443 1,234,651
Stockholders' equity
Preferred stock, $.001 par value per share,
1,000,000 authorized; no shares issued - -
Common stock, par value $.001 per share,
20,000,000 shares authorized;
9,102,429 issued and outstanding 9,102 8,977
Additional paid-in capital 35,613,164 35,578,289
Accumulated deficit (37,104,439) (35,624,470)
Total stockholders' equity (1,482,173) (37,204)
Total liabilities and
stockholders' equity $ 225,270 $ 1,197,447
ALPHA 1 BIOMEDICALS, INC.
STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
(unaudited) (unaudited)
1996 1995 1996 1995
Revenues
Product sales, royalties and consulting
$ 3,783 $ 34,852 $ 12,071 $ 45,894
Total revenues
3,783 34,852 12,071 45,894
Expenses
Research and product
development
125,116 267,620 912,644 617,187
General and administrative
257,379 684,699 488,298 1,250,417
Total expenses
382,495 952,319 1,400,942 1,867,604
Operating loss
(378,712) (917,467) (1,388,871) (1,821,710)
Other income (expense)
2,803 57,714 (27,626) 62,878
Interest expense
(34,297) - (63,472) -
Net loss
$ (410,206) $ (859,753) $ (1,479,969) $ (1,758,832)
Net loss per common share
$ (0.05) $ (0.10) $ (0.16) $ (0.20)
Weighted average number
of common shares outstanding
9,092,814 8,977,429 9,035,121 8,977,429
ALPHA 1 BIOMEDICALS, INC.
STATEMENTS OF CASH FLOWS
Six months ended
June 30,
1996 1995
(unaudited)
Cash flows from operating activities:
Net loss $ (1,479,969) $(1,758,832)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 8,416 31,515
Amortization 64,672 129,343
Equity in losses of VTI - 143,406
Litigation settlement in common stock (60,000) -
Loss on disposal/writedown of
fixed assets 26,969 32,703
Changes in operating assets and
liabilities:
Decrease in prepaid insurance 58,766 80,170
Decrease in other current assets 3,819 152,553
Decrease in due from related party 7,802 66,589
(Increase) decrease in other assets (1,221) 67,300
Increase (decrease) in accounts
payable 1,163,928 (202,971)
Decrease in accrued expenses (631,136) (147,685)
Net cash used in operating activities (837,954) (1,405,909)
Cash flows from investing activities:
Sale of short term investments, net 284,538 1,663,033
Advances to VTI - (143,406)
Proceeds from the sale of fixed assets 13,700 120,500
Net cash used in investing activities 298,238 1,640,127
Cash flows from financing activities:
Proceeds from issuance of common
stock/warrants 35,000 -
Net cash provided by financing activities 35,000 -
Net (decrease) increase in cash and
cash equivalents (504,716) 234,218
Cash and cash equivalents at beginning
of period 546,797 13,705
Cash and cash equivalents at
end of period $ 42,081 $ 247,923
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 42,081
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 126,200
<PP&E> 177,824
<DEPRECIATION> 167,379
<TOTAL-ASSETS> 225,270
<CURRENT-LIABILITIES> 1,707,443
<BONDS> 0
<COMMON> 35,622,266
0
0
<OTHER-SE> 37,104,439
<TOTAL-LIABILITY-AND-EQUITY> 225,270
<SALES> 12,071
<TOTAL-REVENUES> 12,071
<CGS> 0
<TOTAL-COSTS> 1,388,871
<OTHER-EXPENSES> 91,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,479,969
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
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<NET-INCOME> (1,479,969)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0<F1>
<FN>
<F1>LOSS PER SHARE ON A FULLY DILUTED BASIS IS NOT CALCULATED
SINCE THE EFFECT IS ANTIDILUTIVE.
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