<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 December 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 (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 February 10, 1997
was 26,884,990 shares of Common Stock, .01 par value.
Page 1 of 13 pages
<PAGE>
CISTRON BIOTECHNOLOGY, INC.
---------------------------
(A DEVELOPMENT STAGE COMPANY)
---------------------------
INDEX
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<S> <C>
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of December 31, 1996 and June 30, 1996...... 3
Statements of operations for the three months and six months
ended December 31, 1996 and 1995.............................. 4
Statements of cash flows for the six months ended
December 31, 1996 and 1995.................................... 6
Notes to financial statements................................. 7
Item 2. Management's discussion and analysis of results of
operations and financial condition............................ 9
PART II - OTHER INFORMATION............................................. 12
Signatures.................................................... 13
<PAGE> - 2 -
CISTRON BIOTECHNOLOGY, INC.
---------------------------
BALANCE SHEETS
<S> -------------- <C> <C>
June 30, December 31,
-------- ------------
ASSETS 1996 1996
- ------ -------- ------------
CURRENT: (unaudited)
Cash and equivalents $ 359,600 $ 9,743,147
Accounts receivable-trade 28,939 32,121
Accounts receivable-other 206,610 2,295,000
Inventories 6,337 4,586
Prepaid expenses 500 -
Notes receivable - 230,000
--------- ----------
TOTAL CURRENT ASSETS 601,986 12,304,854
--------- ----------
ACCOUNTS RECEIVABLE - Long Term - 5,310,000
--------- ----------
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 722,992 723,922
--------- ----------
6,006 5,076
--------- ----------
SECURITY DEPOSITS 23,938 23,938
PATENTS, Net of accumulated --------- ----------
amortization of $9,236 and $10,561, respectively 27,869 26,544
--------- ----------
$ 659,799 $ 17,670,412
LIABILITIES AND SHAREHOLDERS' EQUITY ========= ==========
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 512,762 $ 3,798,639
Accrued income taxes - 447,000
--------- ----------
TOTAL CURRENT LIABILITIES 512,762 4,245,639
--------- ----------
Long-term accounts payable 747,638 -
Deferred income taxes - 2,126,000
--------- ----------
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
Earnings (deficit)
accumulated during the development stage (9,485,350) 2,413,670
---------- ----------
TOTAL SHAREHOLDERS' EQUITY (600,601) 11,298,773
---------- ----------
$ 659,799 $ 17,670,412
========== ==========
See accompanying notes to financial statements.
- 3 -
<PAGE>
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
-----------------------
(UNAUDITED)
---------
<S> <C> <C> <C>
February 2, 1982
Three Months ended December 31, (commencement of
------------------------------ operations) to
1995 1996 December 31, 1996
----------- ---------- -----------------
Sales....................................... $ 134,170 $ 126,805 $ 8,541,885
Cost of sales............................... 96,050 119,299 3,669,178
---------- ---------- ----------
Gross profit......................... 38,120 7,506 4,872,707
Other revenues:
Funded research and royalty income........ 100,000 100,000 3,701,149
Litigation settlement, net................ - 14,857,523 14,857,523
---------- ---------- ----------
Operating income before expenses..... 138,120 14,965,029 23,431,379
---------- ---------- ----------
Research and development.................... 57,654 24,524 7,866,712
Administrative and marketing................ 358,196 233,993 9,386,096
Occupancy................................... 41,059 47,094 2,153,781
---------- ---------- ----------
Total expenses.............................. 456,909 305,611 19,406,589
---------- ---------- ----------
Operating income (loss)............. (318,789) 14,659,418 3,492,896
Interest income - net....................... 8,147 53,745 130,700
Other expense............................... - - 59,895
Amortization of deferred financing costs.... - - 173,079
Acquisition expense......................... - - 429,620
Income (loss) before income taxes ---------- ---------- ----------
and extraordinary credit.................. (310,642) 14,713,163 3,492,896
Income tax provision........................ - 2,573,000 2,841,538
---------- ---------- ----------
Income (loss) before extraordinary credit... (310,642) 12,140,163 651,358
Extraordinary credit - benefit of tax loss
carryforward.............................. - - 262,838
---------- ---------- ----------
Net income (loss).................... $ (310,642) $ 12,140,163 $ 914,196
========== ========== ==========
Net income (loss) per share................. $ (0.01) $ 0.42
========== ==========
Weighted average shares outstanding......... 26,882,990 29,252,100
========== ==========
See accompanying notes to financial statements
<PAGE> - 4 -
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
----------
<S> <C> <C> <C>
February 2, 1982
Six Months ended December 31, (commencement of
----------------------------- operations) to
1995 1996 December 31, 1996
------------- ------------ -----------------
Sales........................................ $ 268,004 $ 302,285 $ 8,541,885
Cost of sales................................ 165,389 182,276 3,669,178
---------- ---------- ----------
Gross profit.......................... 102,615 120,009 4,872,707
Other revenues:
Funded research and royalty income......... 200,000 200,419 3,701,149
Litigation settlement, net................. - 14,857,523 14,857,523
---------- ---------- ----------
Operating income before expenses...... 302,615 15,177,951 23,431,379
---------- ---------- ----------
Research and development..................... 75,995 48,594 7,866,712
Administrative and marketing................. 548,425 619,231 9,386,096
Occupancy.................................... 91,426 91,847 2,153,781
---------- ---------- ----------
Total expenses............................... 715,846 759,672 19,406,589
---------- ---------- ----------
Operating income (loss)............... (413,231) 14,418,279 4,024,790
Interest income - net........................ 17,849 53,745 130,700
Other expense................................ - - 59,895
Amortization of deferred financing costs..... - - 173,079
Acquisition expense.......................... - - 429,620
Income (loss) before income taxes ---------- ---------- ----------
and extraordinary credit................... (395,382) 14,472,024 3,492,896
Income tax provision......................... - 2,573,000 2,841,538
---------- ---------- ----------
Income (loss) before extraordinary credit.... (395,382) 11,899,024 651,358
Extraordinary credit - benefit of tax loss
carryforward............................... - - 262,838
---------- ---------- ----------
Net income (loss)..................... $ (395,382) $ 11,899,024 $ 914,196
========== ========== ==========
Net income (loss) per share.................. $ (0.01) $ 0.41
========== ==========
Weighted average shares outstanding.......... 26,882,990 29,251,243
========== ==========
See accompanying notes to financial statements
- 5 -
<PAGE>
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
February 2, 1982
Six Months ended December 31, (commencement of
----------------------------- operations) to
1995 1996 December 31, 1996
------------- ------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 296,964 $ 305,145 $ 10,432,256
Cash paid to suppliers and employees (856,874) (2,198,142) (22,223,353
Interest received 17,849 53,745 130,705
Acquisition expenses paid - - (429,620)
Royalties, research funding, license fees received 200,000 200,419 2,267,987
Litigation settlement and other receipts 60,431 11,252,026 11,436,177
---------- ---------- ----------
Net cash provided by (used in) operating activities (281,630) 9,613,193 1,614,152
CASH FLOWS FROM INVESTING ACTIVITIES: ---------- ---------- ----------
Collection of note receivable - - 15,097
Issuance of note receivable - (230,000) (230,000
Purchase of property and equipment - - (729,383)
---------- ---------- ----------
Net cash (used in) investing activities - (230,000) (944,286)
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 (281,630) 9,383,547 9,743,147
CASH AND CASH EQUIVALENTS, beginning of period 891,152 359,600 -
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 609,522 $ 9,743,147 $ 9,743,147
========== ========== ==========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (395,382) $ 11,899,024 $ 914,196
Adjustments to reconcile net income (loss) to net
cash provided used in operating activities:
Depreciation and amortization 6,109 2,251 731,488
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 94,095 (7,401,572) (32,121)
Inventory (3,130) 1,751 (4,586)
Prepaid expenses (2,251) 500 -
Notes and other receivables - - (7,605,000)
Security deposit - - (23,938)
Intangible assets - - (37,105)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 18,929 5,111,239 7,472,060
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ (281,630) $ 9,613,193 $ 1,614,152
=========== ========= ==========
See accompanying notes to financial statements
- 6 -
<PAGE>
CISTRON BIOTECHNOLOGY, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
A. BASIS OF PRESENTATION
---------------------
The financial statements for the periods ended December 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 December 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, 1996. The results of operations for the
periods ended December 31, 1996 and 1995 are not necessarily indicative
of the operating results for the full year.
B. OTHER INCOME
------------
During the three and six-month periods ended December 31, 1996 and 1995,
the Company received non-refundable research and development funding of
$100,000 and $200,000, respectively, representing the sixth and second,
respectively, of 10 consecutive quarterly research and development
payments of $100,000 which another company has agreed to make to
Cistron.
Additionally, net litigation settlement income of $14.9 million was
recorded in the three and six-month periods ended December 31, 1996
representing the amount the Company will receive during the period
November 1996 to November 2000 from the $21 million settlement agreement
with Immunex Corporation ("Immunex"), after deducting amounts to be paid
to counsel and the Institutions.
C. INCOME TAXES
------------
No income tax benefit has been recorded for either of the three-month
and six-month periods ended December 31, 1995 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.
The Company recognized current income taxes payable of $447,000 ($140,000
Federal and $307,000 State) resulting from the November 1996 settlement
with Immunex. In addition, the Company will recognize settlement income
for tax purposes beginning in fiscal 1997 continuing through the fiscal
year ending 2001 and, therefore, has recognized deferred income taxes
payable of $2,126,000 at December 31, 1996. The Company is in an
- 7 -
<PAGE>
Alternative Minimum Tax (AMT) position for the six months ended December
31, 1996 principally due to the limitations placed on the utilization of
the Company's Federal Net Operating Loss (NOL) carryforwards; and, will
receive an AMT credit in future years for the amount of AMT paid.
D. ACCOUNTS RECEIVABLE - OTHER AND NOTE RECEIVABLE
-----------------------------------------------
Accounts receivable - other at June 30, 1996 of $206,610 represented
amounts due from the Institutions for shared expenses of litigation.
Accounts receivable - other at December 31, 1996 (current $2,295,000 and
long-term $5,310,000) represented amounts due November 1997 and November
1998 - 2000, respectively, pursuant to the settlement agreement with
Immunex, net of amounts which will be paid out under agreements with
counsel and the Institutions.
The Company loaned $230,000 to a limited liability company under a six-
month note due May 1997, bearing interest at prime plus 1%, personally
guaranteed by Dr. Grausz, the Company Chairman and a principal stockholder,
who is a managing member of the borrowing company. The note may be
converted, solely at the Company's option, into an 11.5% equity position
of the borrowing company plus $115,000 from the profits of the borrowing
company.
E. CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------
During the six-month period ended December 31, 1996, shareholders' equity
increased by net income of $11,899,024 and by $354 from the proceeds from
the issuance of capital stock due to the exercise of an employee stock
option.
- 8 -
<PAGE>
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, future 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.
In the quarter ended December 31, 1996, Cistron and Immunex entered into a
settlement agreement ending the Company's litigation against Immunex. Under
the terms of the settlement, Immunex assigned IL-1 patents to Cistron and
will make payments aggregating $21 million to Cistron under the following
schedule: $11 million received November 1996, $3 million per year due
November 1997 - 1999, and $1 million due November 2000. Cistron is obligated
to make payments under agreements with counsel and the Institutions based on
the settlement. Cistron will net approximately $14.9 million from the
aggregate Immunex payments, which net amount was recorded as other income in
the December 31, 1996 quarter.
Three Months Ended December 31, 1996 and Three Months Ended
-----------------------------------------------------------
December 31, 1995
-----------------
Sales decreased $7,365 (5.5%) in the quarter ended December 31, 1996 from
the equivalent 1995 quarter due to decreased sales of bulk cytokine assays
offset, in part, by increased sales of bulk reagents. The Company
anticipates continued competition and pressure on sales pricing.
Cost of sales increased $23,249 (24.2%) in the quarter ended December 31,
1996 from the comparable 1995 quarter due to higher manufacturing salary
expense as the result of certain one-time bonus payments offset, in part,
by lower manufacturing material expense due to higher bulk product sales.
During the three months ended December 31, 1996 and 1995, the
Company received non-refundable research and development funding of
$100,000, representing the sixth and second, respectively, of 10
consecutive quarterly research and development payments of $100,000 which
another company has agreed to make to Cistron.
- 9 -
<PAGE>
Total operating expenses decreased $151,298 (33.1%) from the quarter ended
December 31, 1995. Research and development expenses decreased $33,130
(57.5%) from the 1995 comparable quarter due to lower funded university
research offset, in part, by higher research salary expense.
Administrative and marketing expenses decreased $124,203 (34.7%) from the
comparable 1995 quarter as legal expenses associated with the Company's
lawsuit against Immunex were netted against litigation settlement income,
offset, in part, by higher consulting expenses. Occupancy expenses increased
$6,035 (14.7%) due to higher utility expenses.
The investment of excess cash earned interest of $53,745 in the quarter
ended December 31, 1996 compared to $8,147 in the same period of the prior
year.
The Company had operating income of $14,713,163 (pre-tax) in the quarter
due primarily to the litigation settlement with Immunex. There can be no
assurance that its operations will maintain profitability.
Six Months Ended December 31, 1996 and Six Months Ended
-------------------------------------------------------
December 31, 1995
-----------------
Sales increased $34,281 (12.8%) in the six-month period ended December 31,
1996 from the equivalent prior year's period due to higher sales of
IL-1 protein offset, in part, by decreased sales of bulk IL-1 assay
components. Assay sales continue to reflect a trend towards lower unit
pricing within the research market as well as reduced volumes.
Cost of sales increased $16,887 (10.2%) from the prior year due to
increased manufacturing salary expenses as the result of certain one-time
bonus payments offset, in part, by lower manufacturing material expense due
to higher bulk product sales.
During the six-month period ended December 31, 1996, the Company received
non-refundable research and development funding of $200,000, representing
the fifth and sixth of 10 consecutive quarterly research and development
payments of $100,000 which another company has agreed to make to Cistron.
In the six-month period ended December 31, 1995, the Company also received
$200,000 from the other company representing the first two quarterly
payments under the agreement.
Additionally, net litigation settlement income of $14.9 million was
recorded in the six-month period ended December 31, 1996 representing the
amount the Company will receive during the period November 1996 to November
2000 from the $21 million settlement agreement with Immunex, after
deducting amounts to be paid to counsel and the Institutions.
Total operating expenses increased $43,826 (6.1%) in the six-month period
ended December 31, 1996 from the comparable period ended December 31, 1995.
Research and development expenses decreased $27,401 (36.0%) due to lower
university funded research offset, in part, by higher research salary
expense.
- 10 -
<PAGE>
Administrative and marketing expenses increased $70,806 from the comparable
1995 quarter due to increased consulting, travel, advertising and salary
expenses offset, in part, by netting some legal expenses against litigation
settlement income. Occupancy expenses were essentially unchanged from the
six months ended December 31, 1995.
Investment of excess cash balances earned interest income of $17,849 and
$53,745 in the six-month periods ended December 31, 1995 and 1996,
respectively.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996, the Company had current assets of $12,304,854
including cash and cash equivalents of $9,743,147 and had current
liabilities of $4,245,639.
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.
- 11 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the quarter ended December 31, 1996, Cistron and Immunex entered
into a settlement agreement ending the Company's litigation against
Immunex. Under the terms of the settlement, Immunex assigned IL-1
patents to Cistron and will make payments aggregating $21 million to
Cistron under the following schedule: $11 million received November
1996, $3 million per year due November 1997 - 1999, and $1 million due
November 2000. Cistron is obligated to make payments under agreements
with counsel and the Institutions based on the settlement. Cistron
will net approximately $14.9 million from the aggregate Immunex
payments, which net amount was recorded as other income in the December
31, 1996 quarter.
Item 2. Changes in Securities
---------------------
a. Not applicable.
b. Not applicable.
c. On November 20 1996, the Company issued to Kirkland & Ellis, counsel
to the Company for the litigation against Immunex, a four-year
warrant to purchase 250,000 shares of the Company's common stock,
at $.50 per share (the average of the bid and asked prices on
November 20, 1996 was approximately $.32), as additional
compensation. The warrant was acquired by Kirkland & Ellis for
investment, the warrant was appropriately legended and the issuance
of the warrant was exempt from the registration requirements of the
Security Act of 1933, as amended, by virtue of Section 4(2)
thereunder.
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.
27. Financial Data Schedule
b. Reports on Form 8-K.
Not applicable.
- 12 -
<PAGE>
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: February 12, 1997 CISTRON BIOTECHNOLOGY, INC.
---------------------------
(Registrant)
BRUCE C. GALTON
--------------------------
Bruce C. Galton
President, Chief Operating
and Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
- 13 -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information taken from the balance sheet as of
December 31, 1996 (unaudited) and the statement of operations for the six-month period
ended December 31, 1996 (unaudited), and is qualified in its entirety by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,743,147
<SECURITIES> (0)
<RECEIVABLES> 2,327,121
<ALLOWANCES> (0)
<INVENTORY> 4,586
<CURRENT-ASSETS> 12,304,854
<PP&E> 728,998
<DEPRECIATION> 723,922
<TOTAL-ASSETS> 17,670,412
<CURRENT-LIABILITIES> 4,245,639
<BONDS> (0)
(0)
(0)
<COMMON> 8,885,103
<OTHER-SE> 2,413,670
<TOTAL-LIABILITY-AND-EQUITY> 17,670,412
<SALES> 302,285
<TOTAL-REVENUES> 14,995,675
<CGS> 182,276
<TOTAL-COSTS> 182,276
<OTHER-EXPENSES> 759,672
<LOSS-PROVISION> (0)
<INTEREST-EXPENSE> (0)
<INCOME-PRETAX> 14,472,024
<INCOME-TAX> 2,573,000
<INCOME-CONTINUING> (0)
<DISCONTINUED> (0)
<EXTRAORDINARY> (0)
<CHANGES> (0)
<NET-INCOME> 11,899,024
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.41
</TABLE>
