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__________________________________
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 March 31, 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 No. 0-15271
___________
CISTRON BIOTECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
___________
Delaware 22-2487972
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
10 Bloomfield Avenue, Pine Brook, New Jersey 07058
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(201) 575-1700
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 and 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
The aggregate number of Registrant's outstanding shares on May 10, 1996
was 26,882,990 shares of Common Stock, $.01 par value.
Page 1 of 12 pages.
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<TABLE>
<CAPTION>
CISTRON BIOTECHNOLOGY, INC.
(A Development Stage Company)
INDEX
<S> <C>
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of March 31, 1996 and June 30, 1995 3
Statements of operations for the three months and nine
months ended March 31, 1996 and 1995.................. 4
Statements of cash flow for the nine months ended
March 31, 1996 and 1995............................... 6
Notes to financial statements......................... 7
Item 2. Management's discussion and analysis of results of
operations and financial condition.................... 8
PART II - OTHER INFORMATION................................... 11
Signatures............................................ 12
2
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CISTRON BIOTECHNOLOGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, March 31,
1995 1996
ASSETS (Unaudited)
CURRENT:
Cash and equivalents $ 891,152 $ 469,057
Accounts receivable-trade 69,542 59,140
Accounts receivable-other 82,826 83,276
Inventories 7,408 6,497
Prepaid expenses - 2,251
TOTAL CURRENT ASSETS 1,050,928 620,221
PROPERTY AND EQUIPMENT:
Machinery and equipment 498,642 504,211
Furniture and fixtures 147,113 147,113
Leasehold improvements 77,674 77,674
723,429 728,998
Less: Accumulated depreciation 712,865 720,043
10,564 8,955
SECURITY DEPOSITS 23,938 23,938
PATENTS, Net of accumulated
amortization of $6,586 and $8,573, 30,519 28,532
respectively
$ 1,115,949 $ 681,646
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 342,286 $ 342,327
TOTAL CURRENT LIABILITIES 342,286 342,327
Long-term accounts payable 268,098 614,004
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
shares authorized; issued and outstanding
26,882,990
shares in each period 268,830 268,830
Additional paid-in capital 8,615,919 8,615,919
Deficit accumulated during the (8,379,184) (9,159,434)
development stage
TOTAL SHAREHOLDERS' EQUITY 505,565 (274,685)
(Deficency in ASSETS)
$ 1,115,949 $ 681,646
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
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CISTRON BIOTECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended March 31,
1995 1996
<S> <C> <C>
Sales................................... $ 160,740 $ 208,809
Cost of sales........................... 80,412 82,648
Gross profit..................... 80,328 126,161
Other income:
License fees and funded research..... 935,000 100,000
Operating income before expenses. 1,015,328 226,161
Research and development................ 15,747 17,900
Administrative and marketing............ 176,688 550,134
Occupancy............................... 45,447 48,387
Total expenses.......................... 237,882 616,421
Operating income(loss)........... 777,446 (390,260)
Interest income......................... - 5,394
Net income (loss) before income taxes... 777,446 (384,866)
Income taxes............................ 12,473 -
Net income (loss)....................... $ 764,973 $ (384,866)
Net income (loss) per share............. $ 0.03 $ (0.01)
Weighted average shares outstanding..... 27,522,928 26,882,990
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
4
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CISTRON BIOTECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended March 31,
1995 1996
<S> <C> <C>
Sales................................... $ 451,263 $ 476,813
Cost of sales........................... 243,899 248,037
Gross profit...................... 207,364 228,776
Other income:
License fees and funded research....... 985,000 300,000
Operating income before expenses.. 1,192,364 528,776
Research and development................ 47,019 93,895
Administrative and marketing............ 381,787 1,098,559
Occupancy............................... 139,933 139,813
Total expenses.......................... 568,739 1,332,267
Operating income (loss)........... 623,625 (803,491)
Interest income......................... - 23,243
Net income (loss) before income taxes... 623,625 (780,248)
Income taxes............................ 12,473 -
Net income (loss)....................... $ 611,152 $ (780,248)
Net income (loss) per share............. $ 0.02 $ (0.03)
Weighted average shares outstanding..... 27,522,928 26,882,990
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
5
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CISTRON BIOTECHNOLOGY, INC.
STATEMENTS OD CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended March 31,
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers $ 503,022 $ 496,019
Cash paid to suppliers and employees (758,516) (1,298,128)
Interest received - 23,243
Royalties, research funding, 1,055,000 300,000
license fees received
Other receipts 32,914 62,340
Net cash provided by (used in)
operating activities 832,420 (416,526)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment - (5,569)
Net cash (used in) investing activities - (5,569)
CASH AND CASH EQUIVALENTS, beginning of period 154,270 891,152
CASH AND CASH EQUIVALENTS, end of period $ 986,690 $ 469,057
RECONCILIATION OF NET INCOME (LOSS) TO CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 611,152 $ (780,248)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 17,330 9,163
Decrease (increase) in assets:
Accounts receivable (48,742) 9,952
Inventory (138) 911
Prepaid expenses 23,538 (2,251)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 229,280 345,947
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 832,420 $ (416,526)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
6
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CISTRON BIOTECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
A.BASIS OF PRESENTATION
The financial statements for the periods ended March 31, 1996 and 1995 have
been prepared without audit and, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly present the Company's financial position, results of operations, and
cash flows at March 31, 1996 and 1995 and for the periods then ended have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1995. The results of operations for the periods ended March 31, 1996 and
1995 are not necessarily indicative of the operating results for the full
year.
B.OTHER INCOME
During the three and nine-month periods ended March 31, 1996, the Company
received non-refundable research and development funding of $100,000 and
$300,000, respectively, representing the third and first three of 10
consecutive quarterly research and development payments of $100,000 which
another company has agreed to make to Cistron.
C.INCOME TAXES
No income tax benefit has been recorded for either of the three-month or
nine-month periods ended March 31, 1996 as no benefit is available from the
utilization of net operating loss carryforwards of approximately $8,335,000
and investment and research and development tax credits of $372,000.
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Item 2. Management's Discussion and Analysis of Results of Operations
--------------------------------------------------------------
and Financial Condition
-----------------------
The following discussion should be read in conjunction with and is qualified
in its entirety by the accompanying financial information and notes thereto,
and the financial information, notes thereto and management's discussion and
analysis of results of operations and financial condition contained in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
Overview
- - --------
The Company incurred operating losses of $390,260 and $803,491 in the three
and nine-month periods ended March 31, 1996, respectively, due primarily to
litigation expenses. (See Part II - OTHER INFORMATION, Item 1. Legal
Proceedings). Significant litigation related expenses are expected to
continue. The trial of the Company's suit against Immunex has been
rescheduled from April 1996 to September 1996. The operating losses
incurred have resulted in the Company having a negative net worth
position at March 31, 1996.
Results of Operations
- - ---------------------
The Company sells its products to the research market and has not generated
significant revenues therefrom. None of its products have been submitted to
or received approval from the U.S. Food and Drug Administration for the
sale of such products to the diagnostic or therapeutic markets.
Three Months Ended March 31, 1996 and Three Months Ended
--------------------------------------------------------
March 31, 1995
--------------
Sales increased $48,069 (29.9%) in the quarter ended March 31, 1996 from the
equivalent 1995 quarter due to increased sales of IL-1 protein and bulk
assay kit components for IL-1 and TNF, offset, in part, by lower sales of
non-bulk assay kits. Assay sales continue to reflect a trend towards lower
unit pricing within the research market as well as reduced volumes.
Cost of sales increased $2,236 (2.8%) reflecting an increased sales volume
offset, in part, by lower manufacturing material usage due to the higher
product mix of bulk assay components.
During the three-month period ended March 31, 1996, the Company received
non-refundable research and development funding of $100,000, representing
the third of 10 consecutive quarterly research and development payments of
$100,000 which another company has agreed to make to Cistron. Other income
of $935,000 was received in the same period of the prior year under a
license and supply agreement with the same company and $5,000 in royalty
income received under a non-exclusive sublicense granted to another
company in 1991.
Total operating expenses increased $378,539 (159.1%) in the quarter ended
March 31, 1996 from the comparable quarter of 1995. Research and development
expenses increased $2,153 (13.7%) due to increased research materials
purchased for new product studies. Administrative and marketing expenses
8
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increased $373,446 (211.4%) due to increased legal and consulting expenses
incurred in connection with trial preparation in the suit against Immunex
which had been scheduled for trial in April 1996 and legal expenses related
to PeproTech's bankruptcy and the work on the appellate brief submitted in
March 1996. (See Part II - OTHER INFORMATION, Item 1. Legal Proceedings).
Occupancy expenses increased $2,940 (6.5%) due to increased snow removal and
utility costs versus the same quarter of the prior year.
The Company received interest income of $5,394 as the result of investing
excess cash balances during the three months ended March 31, 1996.
The Company had an operating loss of $390,260 in the three-month period ended
March 31, 1996 primarily due to the ongoing expenses of the legal
proceedings and there can be no assurance that its operations will return to
profitability.
Nine Months Ended March 31, 1996 and Nine Months Ended March 31, 1995
Sales increased $25,550 (5.7%) in the nine months ended March 31, 1996 from
the equivalent 1995 period due to increased sales of IL-1 protein and bulk
assay kit components for IL-1 and TNF, offset, in part, by lower sales of
non-bulk assay kits. Assay sales continue to reflect a trend towards lower
unit pricing within the research market as well as reduced volumes.
Cost of sales increased $4,138 (1.7%) reflecting an increased sales volume
offset, in part, by lower manufacturing material usage due to the higher
product mix of bulk assay components.
During the nine months ended March 31, 1996, the Company received
non-refundable research and development funding of $300,000 representing
the first three of 10 consecutive quarterly research and development
payments of $100,000 which another company has agreed to make to Cistron.
During the nine months ended March 31, 1995, the Company received a $1
million one-time, non-refundable license fee under the license and supply
agreement with the same company, against which amount, $70,000 in fees was
paid by the Company to the Institutions. The Company also received
$50,000 in license fees related to the grant of a sublicense to another
company for use of IL-1 in its pharmaceutical research program and $5,000
of royalty income under a non-exclusive sublicense granted to another
company in 1991.
Total operating expenses increased $763,528 (134.2%) in the nine-month period
ended March 31, 1996 from the comparable period ended March 31, 1995.
Research and development expenses increased $46,876 (99.7%) due to the
initiation of a periodontal disease study at a dental school under which the
Company will provide up to $175,000 of funding for IL-1 research.
Administrative and marketing expenses increased $716,772 (187.7%) due to
increased legal and consulting expenses incurred in connection with trial
preparation in the suit against Immunex which had been scheduled for trial
in April 1996 and legal expenses related to PeproTech's bankruptcy and the
work on the appellate brief submitted in March 1996. (See Part II - OTHER
INFORMATION, Item 1. Legal Proceedings). Occupancy expenses were essentially
unchanged from the prior year's nine-month period.
9
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The Company received interest income of $23,243 as the result of investing
excess cash balances during the nine months ended March 31, 1996.
The Company had an operating loss of $803,491 in the nine-month period ended
March 31, 1996 primarily due to the ongoing expenses of the legal
proceedings and there can be no assurance that its operations will return to
profitability.
Liquidity and Capital Resources
At March 31, 1996, the Company had current assets of $620,221, including cash
and cash equivalents of $469,057, and had current liabilities of $342,327.
Significant out-of-pocket expenses for litigation will continue to place
demands on the Company's liquidity and may affect its ability to return to
profitability.
The Company will continue to seek new product development and distribution
opportunities to increase sales. In April 1995, a research and development
Agreement between the Company and another company will provide the Company
with $1 million of research funding, payable over a two and one-half year
period which commenced July 1, 1995.
Management believes that it has sufficient assets to fund the Company's needs
through fiscal 1996. The damage award in the PeproTech suit, if resolved
through the bankruptcy court and, if not overturned on appeal, would add to
the Company's resources.
10
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In January 1996, PeproTech, Inc. filed its brief in appellate court arguing
against the district court's findings on the scope of the IL-1 patent claims
and the amount of damages awarded in the infringement suit. The Company
and the Institutions filed their responsive brief in the appellate court in
March 1996. It is not known when the appeal might be heard or decided.
On April 11, 1996, a hearing was held in district court to determine if
PeproTech and its owners violated the court's 1995 orders that enjoined
PeproTech from infringing the IL-1 patent and which limited the transfer of
assets from PeproTech during a certain period in 1995. It is not known when
the court will make its rulings.
On April 5, 1996, the district court in Seattle, WA granted Immunex's motion
for a continuance in the trial date from April to September 1996. On April
10, 1996 the court issued an order denying Immunex's motion to dismiss
Cistron's claim for damages based on Immunex's unjust enrichment, but
narrowing Cistron's means of measuring unjust enrichment. The court
dismissed Cistron's claims against Immunex and its co-founders under the
federal Racketeer Influenced and Corrupt Organizations Act (RICO), and
dismissed Cistron's claim against the Immunex co-founders for fraud.
In addition the court dismissed Cistron's claim to have its affiliated
scientists named as co-inventors on Immunex's IL-1 patent. The court also
denied Cistron's motion to dismiss Immunex's unfair competition
counterclaim. The court order left standing Cistron's claims against
Immunex and its co-founders for trade secret misappropriation, breach of
duty of confidentiality, breach of contract and unfair competition.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits. Not applicable
b. Reports on Form 8-K. None.
11
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SIGNATURE
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.
Date: May 10, 1996 CISTRON BIOTECHNOLOGY, INC.
---------------------------
(Registrant)
Bruce C. Galton
---------------------------
Bruce C. Galton
President, Chief Operating,
and Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
