<TABLE>
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 Quarterly Period Ended September 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 No. 0-15271
---------------------------
CISTRON BIOTECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------------
Delaware 22-2487972
(State or other jurisdiction of (I.R.S. 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 November 10,
1996 was 26,884,990 shares of Common Stock, .01 par value.
Page 1 of 10 pages
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CISTRON BIOTECHNOLOGY, INC.
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(A DEVELOPMENT STAGE COMPANY)
---------------------------
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of September 30, 1996 and June 30, 1996........ 3
Statements of operations for the three months ended
September 30, 1996 and 1995...................................... 4
Statements of cash flow for the three months ended
September 30, 1996 and 1995...................................... 5
Notes to financial statements.................................... 6
Item 2. Management's discussion and analysis of results
of operations and financial condition............................ 7
PART II - OTHER INFORMATION................................................ 9
Signatures....................................................... 10
2
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CISTRON BIOTECHNOLOGY,INC.
--------------------------
BALANCE SHEETS
--------------
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June 30, September 30,
----------- -------------
1996 1996
ASSETS ----------- -------------
- ------ (unaudited)
CURRENT:
Cash and equivalents $ 359,600 $ 292,830
Accounts receivable-trade 28,939 61,731
Accounts receivable-other 206,610 247,837
Inventories 6,337 3,590
Prepaid expenses 500 500
----------- -----------
TOTAL CURRENT ASSETS 601,986 606,488
----------- -----------
PROPERTY AND EQUIPMENT:
Machinery and equipment 504,211 504,211
Furniture and fixtures 147,113 147,113
Leasehold improvements 77,674 77,674
----------- -----------
728,998 728,998
Less: Accumulated depreciation 722,992 723,454
----------- -----------
6,006 5,544
----------- -----------
SECURITY DEPOSITS 23,938 23,938
----------- -----------
PATENTS, Net of accumulated amortization
of $9,236 and $9,898, respectively 27,869 27,207
DEFERRED CHARGE - 890,000
----------- -----------
$ 659,799 $ 1,553,177
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 512,762 $ 644,586
----------- -----------
TOTAL CURRENT LIABILITIES 512,762 644,586
----------- -----------
Long-term accounts payable 747,638 1,749,977
SHAREHOLDERS' EQUITY: ----------- -----------
Common stock, $.01 par value; 50,000,000 shares
authorized; issued and outstanding 26,882,990
shares and 26,884,990 shares, respectively 268,830 268,850
Additional paid-in capital 8,615,919 8,616,253
Deficit accumulated during the development stage (9,485,350) (9,726,489)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (600,601) (841,386)
----------- -----------
$ 659,799 $ 1,553,177
=========== ===========
See accompanying notes to financial statements.
3
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CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
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Three Months ended February 2, 1982
Three Months ended September 30, (commencement of
-------------------------------- operations) to
1995 1996 September 30, 1996
------------ -------------- ------------------
Sales............................................ $ 133,834 $ 175,480 $ 8,415,080
Cost of sales.................................... 69,339 62,977 3,549,879
---------- --------- ----------
Gross profit.............................. 64,495 112,503 4,865,201
Other revenues:
Funded research and royalty income.............. 100,000 100,419 3,601,149
---------- ---------- ----------
Operating income before expenses.......... 164,495 212,922 8,466,350
---------- ---------- ----------
Research and development......................... 18,341 24,070 7,842,188
Administrative and marketing..................... 190,229 385,238 9,152,103
Occupancy........................................ 50,367 44,753 2,106,687
---------- ---------- ----------
Total expenses................................... 258,937 454,061 19,100,978
---------- ---------- ----------
Operating loss............................ 94,442 241,139 10,634,628
Interest income (expense) - net.................. 9,702 - 76,955
Other expense - - 59,895
Amortization of deferred financing costs - - 173,079
Acquistion expense - - 429,620
---------- ---------- ----------
Loss before income taxes and extraordinary credit. 84,740 241,139 11,220,267
Income tax provision.............................. - - 268,538
---------- ---------- ----------
Loss before extraordinary credit.................. 84,740 241,139 11,488,805
---------- ---------- ----------
Extraordinary credit - benefit of tax loss
carry forward.................................... - - 262,838
---------- ---------- ----------
Net loss.......................................... $ 84,740 $ 241,139 $ 11,225,967
========== ========== ==========
Net loss per share............................... $ - $ 0.01
========== ==========
Weighted average shares outstanding.............. 26,882,990 26,884,990
========== ==========
See accompanying notes to financial statements
4
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CISTRON BIOTECHNOLOGY, INC.
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STATEMENTS OF CASH FLOW
-----------------------
(UNAUDITED)
-----------
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February 2, 1982
Three Months ended September 30, (commencement of
-------------------------------- operations) to
1995 1996 September 30, 1996
----------- ----------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 149,081 $ 145,518 $ 10,272,629
Cash paid to suppliers and employees (478,479) (440,000) (20,465,211)
Interest received 9,702 - 76,960
Acquistion expenses paid - - (429,620)
Royalties, research funding,
license fees received 100,000 100,419 2,167,987
Other receipts 59,807 126,939 311,090
--------- ---------- ------------
Net cash used in operating activities (159,889) (67,124) (8,066,165)
--------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - - 15,097
Purchase of property and equipment - - (729,383)
--------- ---------- -----------
Net cash used in investing activities - - (714,286)
--------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock
and additional contributions - 354 9,943,519
Principal payments on notes payable - - (870,238)
--------- --------- -----------
Net cash provided by financing activities - 354 9,073,281
--------- --------- -----------
Net change in cash and cash equivalents (159,889) (66,770) 292,830
CASH AND CASH EQUIVALENTS, beginning of period 891,152 359,600 -
--------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 731,263 $ 292,830 $ 292,830
RECONCILIATION OF NET LOSS TO CASH ========= ========= ===========
USED IN OPERATING ACTIVITIES:
Net loss $ 84,740 $ 241,139 $ 11,225,967
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,054 1,124 730,361
Loss on disposal of property and equipment - - 3,979
Other expense - - 22,100
Amortization of deferred financing costs - - 173,079
Decrease (increase) in assets:
Accounts receivable 49,134 (74,019) (102,958)
Inventory (572) 2,747 (3,590)
Prepaid expenses - - (500)
Notes and other receivables - - (222,310)
Security deposit - - (23,938)
Intangible assets - - (37,105)
Deffered charges - (890,000) (890,000)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (126,765) 1,134,163 3,510,684
--------- ---------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (159,889) $ (67,124) $ (8,066,165)
========= ========== ===========
See accompanying notes to financial statements.
5
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CISTRON BIOTECHNOLOGY, INC.
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
A. BASIS OF PRESENTATION
---------------------
The financial statements for the periods ended September 30, 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 September 30, 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, 1996.
The results of operations for the periods ended September 30, 1996 and 1995
are not necessarily indicative of the operating results for the full year.
B. CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------
During the three months ended September 30, 1996, shareholders' equity
decreased as a result of a net loss of $241,139 offset, in part, by $354 from
the proceeds from the issuance of capital stock due to the exercise of an
employee stock option. In the three months ended September 30, 1995, share-
holders' equity decreased as a result of net loss of $84,740 in such period.
C. OTHER INCOME
------------
During the three-month periods ended September 30, 1996 and 1995, the Company
received non-refundable research and development funding of $100,000,
representing the first and fifth, respectively, of 10 consecutive quarterly
research and development payments of $100,000 which another company has
agreed to make to Cistron.
D. DEFERRED CHARGE
---------------
Under an agreement with the attorneys which handled the Immunex litigation on
behalf of the Company, additional contingent expenses of $890,000 were
accrued as deferred charges and long-term accounts payable as they will
become payable in the quarter ending December 31, 1996. The final amount of
contingent expenses through November 1996 cannot yet be determined. However,
also, in the December 31, 1996 quarter, other income will be recorded to
reflect the settlement of the Immunex lawsuit.
E. INCOME TAXES
------------
No income tax benefit has been recorded for either of the three-month
periods as no benefit is available due to the availability of net operating
loss carryforwards of approximately $8,956,000 and investment and research
and development tax credits of $372,000.
6
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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, 1996.
Certain statements in this discussion and analysis constitute forward-looking
statements, are not historical facts, and involve risks and uncertainties that
could cause actual results to differ from those expected and projected. Such
risks and uncertainties include but are not limited to: (i) general economic
conditions; (ii) conditions specific to the biotechnology industry; (iii) the
Company's ability to develop and obtain regulatory approval to commercialize
diagnostic or therapeutic products; (iv) the effectiveness and ultimate market
acceptance of any such products; (v) limitations on third party reimbursements
with respect to any such products; and (vi) competition. The Company does not
undertake to update or revise any forward-looking statements contained herein
whether as a result of new information, furture events or otherwise.
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 Food and Drug Administration for the sale of such
products to the diagnostic or therapeutic markets.
Three Months Ended September 30, 1996 and Three Months Ended
------------------------------------------------------------
September 30, 1995
------------------
Sales increased $41,646 (31.1%) in the quarter ended September 30, 1996 from the
equivalent 1995 quarter due to increased sales of bulk cytokine assays and
reagents. The Company anticipates continued competition and pressure on sales
pricing.
Cost of sales decreased $6,362 (9.2%) in the quarter ended September 30, 1996
from the comparable 1995 quarter due to lower manufacturing salary expense as
the result of lower headcount and lower manufacturing material expense due to
higher bulk product sales, offset, in part, by higher sales volume.
During each of the three months ended September 30, 1996 and 1995, the Company
received non-refundable research and development funding of $100,000,
representing the first and fifth, respectively, of 10 consecutive quarterly
research and development payments of $100,000 which another company has agreed
to make to Cistron.
Total operating expenses increased $195,124 (75.4%) from the quarter ended
September 30, 1995. Research and development expenses increased $5,729 (31.2%)
from the 1995 comparable quarter due to funding university research.
Administrative and marketing expenses increased $195,009 (102.5%) from the
comparable 1995 quarter due to increased legal and consulting expenses
associated with the Company's lawsuits against Immunex Corp. and PeproTech, Inc.
Occupancy expenses decreased $5,614 (11.1%) due to lower utility expenses.
7
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The investment of excess cash earned interest of $9,702 in the quarter ended
September 30, 1995. No interest income was received in the same period of the
current year.
The Company recorded $890,000 of contingent liabilities as deferred charges and
accrued long-term accounts payable in the quarter ended September 30, 1996.
Such liabilities reflect additional litigation expenses which will be paid in
the quarter ended December 31, 1996 as the result of reaching a settlement in
the Immunex lawsuit. The final amount of additional contingent expenses through
November 1996 cannot yet be determined.
The Company had an operating loss of $241,139 in the quarter and there can be no
assurance that its operations will return to profitability.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1996, the Company had current assets of $606,488 including cash
and cash equivalents of $292,830 and had current liabilities of $644,586.
Significant out-of-pocket expenses for litigation will continue in the quarter
ending December 1996. However, in October 1996, the Company and Immunex
Corporation agreed to settle the Company's claims against Immunex and two of its
former officers. The agreement provides payment of an aggregate of $21 million
to the Company over five years (See PART II - OTHER INFORMATION, Item 1. Legal
Proceedings) starting with a payment of $11 million on November 15, 1996. Under
an agreement with the attorneys which handled the litigation on behalf of the
Company, additional contingent expenses of approximately $890,000 were accrued
as liabilities on the September 30, 1996 balance sheet. The final amount of
additional contingent expenses through November 1996 cannot yet be determined.
The attorneys will also be paid a percentage of the gross settlement amount.
The net settlement payment amounts will be apportioned between the Company and
the Institutions pursuant to an agreement under which the Institutions shared a
portion of the litigation expenses. While the final amount cannot be determined
at this time, it is estimated that the Company's share of the total settlement
proceeds will range between $12 and $14 million.
Management believes that it will have sufficient assets to fund the Company's
needs through fiscal 1997. 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.
8
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PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
In October 1996, oral argument was presented by the Company and Pepro
Tech in Appellate Court. It is not known when the appeal will be
decided.
Trial in the Company's lawsuit against Immunex was scheduled to begin
November 5, 1996. On October 29, 1996, the Company and Immunex agreed
to settle all of the Company's claims against Immunex and two former
Immunex officers. The settlement calls for the defendants to pay
Cistron an aggregate of $21 million; payable $11 million in November
1996, $3 million in each November 1997, 1998 and 1999 and $1 million
in November 2000. Immunex will also assign its IL-1 beta patents to
Cistron.
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. Not applicable.
9
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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.
Date: November 12, 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)
10
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<ARTICLE>5
<LEGEND>
This Schedule contains summary financial information taken from the balance
sheet as of September 30, 1996 (unaudited) and the statement of operations for
the three-month period ended September 30, 1996 (unaudited) and is qualified in
its entirety by reference to the Commpany's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 292,830
<SECURITIES> (0)
<RECEIVABLES> 309,568
<ALLOWANCES> (0)
<INVENTORY> 3,590
<CURRENT-ASSETS> 606,488
<PP&E> 728,998
<DEPRECIATION> 723,454
<TOTAL-ASSETS> 1,553,177
<CURRENT-LIABILITIES> 644,586
<BONDS> (0)
(0)
(0)
<COMMON> 8,885,103
<OTHER-SE> (9,726,489)
<TOTAL-LIABILITY-AND-EQUITY> 1,553,177
<SALES> 175,480
<TOTAL-REVENUES> 275,899
<CGS> 62,977
<TOTAL-COSTS> 62,977
<OTHER-EXPENSES> 454,061
<LOSS-PROVISION> (241,139)
<INTEREST-EXPENSE> (0)
<INCOME-PRETAX> (241,139)
<INCOME-TAX> (0)
<INCOME-CONTINUING> (0)
<DISCONTINUED> (0)
<EXTRAORDINARY> (0)
<CHANGES> (0)
<NET-INCOME> (241,139)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
