----------------------------------
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 March 31, 2000
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)
239 New Road, Parsippany, New Jersey 07054
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(973) 575-1700
----------------------------
10 Bloomfield Avenue, Pine Brook, New Jersey 07058
(Former Address Of Principal Executive Offices) (Zip Code)
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 12, 2000 was
20,861,854 shares of Common Stock, .01 par value.
Page 1 of 13 pages
<PAGE> 2
CISTRON BIOTECHNOLOGY, INC.
===========================
(A DEVELOPMENT STAGE COMPANY)
---------------------------
INDEX
-----
<TABLE>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 2000 and June 30, 1999.......... 3
Statements of Operations for the Three Months and
Nine Months ended March 31, 2000 and 1999...................... 4
Statements of Cash Flows for the Nine Months ended
March 31, 2000 and 1999........................................ 6
Notes to Financial Statements.................................. 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition............................. 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................... 11
PART II - OTHER INFORMATION.............................................. 12
Signatures..................................................... 13
</TABLE>
<PAGE> 3
CISTRON BIOTECHNOLOGY, INC.
---------------------------
BALANCE SHEETS
--------------
<TABLE>
<S> <C> <C>
June 30, March 31,
ASSETS 1999 2000
- ------ ------------ -------------
CURRENT ASSETS: (unaudited)
Cash and equivalents $ 8,760,916 $ 9,088,154
Accounts receivable - trade 28,279 -
Accounts receivable - other 2,942,361 968,835
Inventories 1,023 -
Taxes receivable 369,557 -
Notes receivable $230,000; reserve $230,000 - -
---------- ----------
TOTAL CURRENT ASSETS 12,102,136 10,056,989
ACCOUNTS RECEIVABLE - OTHER - Long Term 931,440 -
PROPERTY AND EQUIPMENT:
Machinery and equipment 507,557 -
Furniture and fixtures 147,113 -
Leasehold improvements 77,674 -
---------- ----------
732,344 -
Less: Accumulated depreciation 706,980 -
---------- ----------
25,364 -
SECURITY DEPOSITS 23,938 -
PATENTS - net of accumulated amortization
of $17,186 and $19,173, respectively 19,919 17,932
---------- ----------
TOTAL ASSETS $ 13,102,797 $ 10,074,921
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 390,386 $ 154,974
Other current liabilities 775,484 312,943
---------- ----------
TOTAL CURRENT LIABILITIES 1,165,870 467,917
Deferred revenue 69,750 -
Other non-current liabilities 270,796 -
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares authorized;
issued 29,683,854 and 30,315,576 shares, respectively 296,839 303,156
Additional paid-in capital 9,865,036 9,970,433
Earnings accumulated during the development stage 2,106,961 1,371,729
Treasury stock 3,946,500 and (394,650) (1,658,350)
9,504,906 shares repectively, at cost
Note receivable for shares of stock (277,805) (379,963)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 11,596,381 9,607,004
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,102,797 $ 10,074,921
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 4
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
---------
<TABLE>
February 2, 1982
(commencement of
Three Months ended March 31, operations) to
1999 2000 March 31, 2000
------------------------------------------------------
<S> <C> <C> <C>
Sales....................................... $ 86,857 $ - $ 9,804,427
Cost of sales............................... 38,395 - 4,472,394
---------- ---------- ----------
Gross profit.............................. 48,462 - 5,332,033
Other revenue - net:
Litigation settlements.................... - - 14,684,206
License fees and funded research.......... 783,000 130,689 5,340,775
Expenses:
Research and development.................. 119,495 7,365 9,161,836
Administrative and marketing.............. 255,071 382,399 13,171,080
Occupancy................................. 47,913 8,313 2,754,419
Employee severance - - 369,762
---------- ---------- ----------
Total expenses.............................. 422,479 398,077 25,457,097
---------- ---------- ----------
Operating income/(loss)................... 408,983 (267,388) (100,083)
Interest income/(expense) - net............. 88,310 110,122 1,531,480
Other (expense) - net....................... - - (42,275)
Amortization of deferred financing costs.... - - (173,079)
Acquisition expense......................... - - (429,620)
---------- ---------- ----------
Income/(loss) before income taxes
and extraordinary credit.................. 497,293 (157,266) 786,423
Income tax provision (benefit).............. 188,970 50 1,176,636
---------- ---------- ----------
Income/(loss) before extraordinary credit... 308,323 (157,316) (390,213)
Extraordinary credit - benefit of tax loss
carryforward.............................. - - 262,838
---------- ---------- ----------
Net income/(loss)......................... $ 308,323 $ (157,316) $ (127,375)
========== ========== ==========
Net income/(loss) per share................. $ 0.01 $ (0.01)
========== ==========
Weighted average shares outstanding......... 24,317,020 20,667,741
========== ==========
Net income/(loss) per share -
assuming dilution......................... $ 0.01 $ (0.01)
========== ==========
Weighted average shares outstanding -
assuming dilution......................... 25,859,394 20,667,741
========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE> 5
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
-----------
<TABLE>
February 2, 1982
(commencement of
Nine Months ended March 31, operations to
1999 2000 March 31, 2000
-----------------------------------------------------
<S> <C> <C> <C>
Sales........................................ $ 291,637 $ 52,690 $ 9,804,427
Cost of sales................................ 193,913 142,417 4,472,394
---------- ---------- ----------
Gross profit............................... 97,724 (89,727) 5,332,033
Other revenues - net:
Litigation settlement...................... - - 14,684,206
License fees and funded research........... 852,750 302,126 5,340,775
Expenses:
Research and development................... 275,137 167,051 9,161,836
Administrative and marketing............... 729,402 980,376 13,171,080
Occupancy.................................. 146,708 88,844 2,754,419
Employee severance - - 369,762
---------- ---------- ----------
Total expenses............................... 1,151,247 1,236,271 25,457,097
---------- ---------- ----------
Operating income (loss).................... (200,773) (1,023,872) (100,083)
Interest income/(expense) - net.............. 290,614 271,544 1,531,480
Other (expense) - net........................ - 17,620 (42,275)
Amortization of deferred financing costs..... - - (173,079)
Acquisition expense.......................... - - (429,620)
---------- ---------- ----------
Income (loss) before income taxes
and extraordinary credit.................... 89,841 (734,708) 786,423
Income tax provision (benefit)............... 34,139 150 1,176,636
---------- ---------- ----------
Income/(loss) before extraordinary credit.... 55,702 (734,858) (390,213)
Extraordinary credit - benefit of tax loss
carryforward.............................. - - 262,838
---------- ---------- ----------
Net income/(loss).......................... $ 55,702 $ (734,858) $ (127,375)
========== ========== ==========
Net loss per share........................... $ - $ (0.04)
========== ==========
Weighted average shares outstanding.......... 23,728,212 20,532,939
========== ==========
Net income/(loss) per share -
assuming dilution........................... $ - $ (0.04)
========== ==========
Weighted average shares outstanding -
assuming dilution.......................... 26,647,226 20,532,939
========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE> 6
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENT OF CASH FLOWS
-----------------------
(UNAUDITED)
-----------
<TABLE>
February 2, 1982
(commencement of
Nine Months ended March 31, operations) to
1999 2000 March 31, 2000
------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 333,425 $ 80,595 $ 11,752,932
Cash paid to suppliers and employees (2,206,669) (2,548,633) (36,454,125)
Interest received 226,114 295,960 1,215,387
Acquisition expenses paid - - (429,620)
Royalties, research funding, license fees received 889,605 284,520 4,007,112
Other receipts 3,003,678 3,393,940 21,545,039
---------- ---------- ----------
Net cash provided by operating activities 2,246,153 1,506,383 1,636,726
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - - 15,097
Issuance of note receivable - - (230,000)
Sale(Purchase) of property and equipment (2,146) 75,000 (692,121)
---------- ---------- ----------
Net cash from(used in) investing activities (2,146) 75,000 (907,024)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock and
additional contributions 930,000 9,555 10,887,040
Principal payments on notes payable - - (870,238)
Purchase of treasury stock - (1,263,700) (1,658,350)
---------- ---------- ----------
Net cash provided by financing activities 930,000 (1,254,145) 8,358,452
---------- ---------- ----------
Net change in cash and cash equivalents 3,174,007 327,238 9,088,154
CASH AND CASH EQUIVALENTS, beginning of period 5,832,031 8,760,916 -
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 9,006,038 $ 9,088,154 $ 9,088,154
========== ========== ==========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 55,702 $ (734,858) $ (127,375)
Adjustments to reconcile net income (loss) to net - -
cash provided by operating activities: - -
Depreciation and amortization 5,872 4,971 755,990
Issue of warrants - - 65,000
Deferred income taxes - - -
Loss(Gain) on disposal of property and equipment - (52,619) (44,088)
Increase in reserve for note receivable - - 230,000
Amortization of deferred financing costs - - 195,179
Decrease (increase) in assets:
Accounts receivable 34,887 2,001,431 1,973,152
Inventory 2,236 1,023 -
Taxes receivable - 369,557 -
Notes and other receivables 2,787,988 931,440 (2,958,061)
Security deposit - 23,938 -
Intangible assets - - (37,105)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (23,899) (255,850) 1,998,292
Other current and non-current liabilities (616,633) (782,650) (414,258)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,246,153 $ 1,506,383 $ 1,636,726
========== ========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE> 7
CISTRON BIOTECHNOLOGY, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
-----------
A. BASIS OF PRESENTATION
The financial statements for the three and nine month periods ended
March 31, 2000 and 1999 have been prepared without audit and, in the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the Company's
financial position, results of operations, and cash flows at March 31,
2000 and 1999 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted. Certain amounts in
prior period financial statements have been reclassified to conform to
current presentation.
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, 1999.
The results of operations for the periods ended March 31, 2000 and
1999 are not necessarily indicative of the operating results for the
full year. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. MERGER AGREEMENT
On March 21, 2000, the Company and Celltech Group, plc ("Celltech")
entered into an agreement and plan of merger (the "Merger Agreement")
under which the Company will become a wholly owned subsidiary of
Celltech. The Merger is intended to qualify as a tax-free
reorganization and requires approval of the shareholders of the
Company (See Item 2. Recent Developments and the Company's Form 8-K
filed on March 28, 2000).
<PAGE> 8
C. OTHER INCOME
Other income includes sales related royalties and $75,000 ($69,750 net
of fees) per quarter under a three-year program, which commenced in
the fiscal quarter ended December 31, 1998, from Aventis Pasteur
("Aventis Pasteur"), a subsidiary of Aventis S.A. to fund the
Company's vaccine adjuvant development program.
During the three month period ended March 31, 1999, the Company
received $750,000 ($713,250 net of fees) from R&D Systems ("RDS") for
the sale of the Company's Interleukin-1 beta ("IL-1 beta") research
product line and the Company continues to receive royalties for sales
of these products.
D. INCOME TAXES
Although tax benefits were recorded against the net losses incurred in
periods ending on or before June 30, 1999, such benefits are not
available for periods commencing thereafter.
E. ACCOUNTS RECEIVABLE
Accounts receivable - other consists of an amount due in November 2000
pursuant to litigation settlement agreement entered into in Fiscal
1997. This amount has been discounted to reflect its present value.
The Company discontinued all manufacturing and sales activities in
October 1999. All trade receivables have been collected.
F. CHANGES IN SHAREHOLDERS' EQUITY
During the nine-month period ended March 31, 1999, shareholders'
equity increased $985,701 due to the sale of 1,333,333 shares of
the Company's Common Stock to Aventis for $1 million ($930,000 net
of fees) and by net income of $55,702.
In July 1999, shareholders' equity decreased due to the repurchase,
for $1,263,700, of 5,558,406 shares of the Company's Common Stock for
treasury. In November 1999, 150,000 shares of the Company's Common
Stock were issued pursuant to the exercise of an option by a former
director of the Company. In January 2000, 481,722 shares of the
Company's Common Stock were issued pursuant to the exercise of an
option and in return for the execution by a former officer of the
Company of a non-recourse promissory note in the principal amount
of the aggregate exercise price.
During the three and nine month periods ended March 31, 2000,
shareholders' equity was decreased by net losses of $157,316 and
$734,858, respectively, and the effect of the aforementioned
transactions.
G. EARNINGS PER SHARE CALCULATIONS
The following is a summary of the components used to calculate Earnings
per Share:
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 2000 1999 2000
------------------------- -------------------------
<S> <C> <C> <C> <C>
Earnings per common share:
- --------------------------
Net income (loss)(numerator) $ 308,323 $ (157,316) $ 55,702 $ (734,858)
Weighted averageshares(denominator) 24,317,020 20,667,741 23,728,212 20,532,939
Income (loss) pershare $ 0.01 $ (0.01) $ - $ (0.04)
========== ========== ========== ==========
Earnings per common share -
assuming dilution:
- ---------------------------
Net income (loss)(numerator) $ 308,323 $ (157,316) $ 55,702 $ (734,858)
Weighted average shares 24,317,020 20,667,741 23,728,212 20,532,939
Effect of dilutive options 1,542,374 - 2,919,014 -
========== ========== ========== ==========
Weighted average shares -
assuming dilution(denominator) 25,859,394 20,667,741 26,647,226 20,532,939
Income (loss) per share $ 0.01 $ (0.01) $ - $ (0.04)
========== ========== ========== ==========
</TABLE>
<PAGE> 9
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 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, 1999.
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 or acquire
new technology or products through licensing, merger or acquisition and to
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; (vi) competition; and (vii) the failure to consummate the
Merger between the Company and Celltech Group, plc, discussed below. 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.
Recent Developments
- -------------------
Merger Agreement with Celltech Group, plc
On March 21, 2000, the Company and Celltech Group, plc ("Celltech") entered
into an agreement and plan of merger (the "Merger Agreement") under which
the Company will become a wholly-owned subsidiary of Celltech. The Merger
is intended to qualify as a tax-free reorganization.
Holders of the outstanding shares of the Company's common stock will
receive from Celltech at the effective time of the Merger (i) the sum of
$7,750,000 and the amount of the Company's net current assets as set forth
on the Company's balance sheet as of the closing date and (ii) $1,000,000
which will be held in escrow following the effective time of the Merger and
released as of December 31, 2000 (net of deductions for uncollected
receivables and certain other expenses, if any) to the former holders of
the Company's common stock. Based on current estimates of the Company's
net current assets, holders of shares of the Company's common stock will
receive approximately $18,000,000 in exchange for Company common stock in
the Merger. The purchase price of approximately $18,000,000, payable to the
Company's stockholders in Celltech American Depository Shares ("ADSs"),
is base on the price of the ADSs for the five-day trailing average of
Celltech ADSs through March 20, 2000. The price of the ADSs for
this period was $40.8875.
In connection with the Merger, holders of the Company's common stock will
also be entitled to receive up to $3.5 million in cash and $3.5 million in
Celltech ADSs, net of expenses and taxes, in the event that Aventis Pasteur
exercises the options previously granted by the Company to acquire
exclusive licenses to use the Company's IL-1 Beta technology in developing
preventative and therapeutic vaccines (the "Aventis Pasteur Option"). The
Company, however, has recently entered into discussions with Aventis Pasteur
concerning the potential early termination of the Collaboration and Option
Agreement, including the termination of the Aventis Pasteur Option.
<PAGE> 10
This Merger is subject to various conditions, including approval by
appropriate governmental agencies and the Company's stockholders. The
Company may not succeed in consummating the Merger.
Amendment to the License Agreement with the "Institutions"
On March 21, 2000, to satisfy a condition to Celltech's obligation to
consummate the Merger, the Company and the Massachusetts Institute of
Technology, New England Medical Center Hospitals, Inc., Trustees of Tufts
College, Tufts University School of Medicine and Wellesley College
(collectively, the "Institutions") amended the license agreement ("Amended
License Agreement") that the parties first entered into on December 2, 1983
and which grants the Company an exclusive license to IL-1 Beta patents
owned by the Institutions. Under the Amended License Agreement, among
other things, the parties reduced the royalty rate payable by the Company
to Licensors from 7% to 3% (or 1.5% if a product is sold under a
sublicensing arrangement) on sales of certain licensed products.
Amendment to the Agreement with eMedsecurities, Inc. (formerly Genome
Securities)
In connection with the Merger and when it is effective, eMedsecurities,
Inc., the Company's former financial advisor, will receive a fee of
$700,000, of which $100,000 was paid at the signing of the Merger Agreement
with Celltech and is non-refundable. Robert Naismith, PhD, a Director of
the Company, is the Chairman of eMedsecurities.
Results of Operations
- ---------------------
The Company historically sold its products to the research market but did
not generate any significant revenues therefrom. The Company ceased the
direct sale of its products as of October 31, 1999.
The Company believes it is a development stage enterprise because planned
principal operations have not yet commenced. The Company's planned
principal operations include the development of clinical and therapeutic
products for distribution through pharmaceutical and diagnostic companies.
This requires the approval of the Company's products by the FDA. At March
31, 2000, no such product candidate had been submitted to the FDA for
approval and none is anticipated to be submitted for several years, if at
all.
In addition, the Company continues to devote most of its efforts to
activities such as research and development, financial planning and
developing markets, which are typical activities for a development stage
enterprise. For example, the Company has expended funds relating to its
vaccine adjuvant program. Also, from September 1998, the Company had
engaged the services of Genome Securities, Inc. (now "eMedsecurities"),
whose Chairman and CEO, Robert Naismith, Ph. D., is also a member of the
Company's Board of Directors, to act as Cistron's financial advisor as to
corporate strategic and financial initiatives. Accordingly, as the
Company has not yet commenced principal operations and is devoting most of
its efforts to activities typical of a development stage enterprise as
outlined in Statement of Financial Accounting Standards No.7, the Company
believes that it continues to be in the development stage.
<PAGE> 11
The Company has outsourced all of its manufacturing and research and
development efforts. The Company has terminated its lease agreement with
its landlord for office and production space and has temporarily shared
with the new tenant office space in the formerly leased facility. The lease
change coincided with an employee reduction in force and all but two of the
Company's employees have been terminated. On May 15, 2000, the Company
has relocated its offices to 239 New Road, Parsippany, NJ 07054 where it
can oversee its research and development programs and pursue its strategic
objectives.
While the Company has signed the Merger Agreement with Celltech Group, plc,
the Company may not consummate a merger. Without such event, the Company
may consider a partial or full liquidation of the Company.
Three Months Ended March 31, 2000 and Three Months Ended March 31, 1999
- -----------------------------------------------------------------------
There were no sales in the quarter ended March 31, 2000 due to the
Company's earlier decision to withdraw from direct production and sale of
its products.
Operating expenses decreased $24,402 (6%) in the quarter ended March 31,
2000 versus the same quarter of the prior year due to higher administrative
expenses offset by significantly reduced R&D and occupancy expenses.
Research and development expenses decreased $112,130 (94%) due primarily to
the timing of payments for external research funding for vaccine adjuvant
studies. Administrative expenses increased $127,328 (50%) due primarily to
the increase in patent and merger related legal expenses. Occupancy
expense decreased $39,600 (83%) due to the termination of the Company's
facility lease and the transition to use of a small part of the facility.
Net interest income of $110,122, an increase of $21,812, was earned on the
investment of cash balances, which were higher than in the same period of
the prior year, and on the discounted payables and receivables related to
settlement of the Immunex litigation.
The Company had an operating loss of $157,316 in the quarter and there can
be no assurance that its operations will reach profitability.
Cash increased $23,630 in the quarter primarily due to the collection of a
tax receivable in the amount of $103,617, and semi-annual royalty payments.
Nine Months Ended March 31, 2000 and Nine Months Ended March 31, 1999
- ---------------------------------------------------------------------
Sales decreased $238,947(82%) in the nine months ended March 31, 2000 as
compared to the same period of the prior year due to the Company's decision
to withdraw from direct production and sale of its products.
Operating expenses increased $85,024(7%) in the nine month period ended
March 31, 2000 versus the same period of the prior year due primarily to
higher administrative expenses offset by lower R&D and occupancy expenses.
Administrative expenses increased $250,974(34%) due mainly to higher legal
and consulting expenses offset, in part, by decreases in employee salaries
and benefits. The legal expense
<PAGE> 12
increase represented primarily patent and merger related costs. Occupancy
expenses decreased $57,874(39%) due to the termination of the Company's
facility lease and the transition to use of a small part of the facility.
Interest income of $271,544, a decrease of $19,070, was earned on the
investment of cash balances, which were higher than in the same period of
the prior year. The decrease is due to inclusion in the prior year amount
of higher levels of imputed net interest income on the discounted payables
and receivables related to settlement of the Immunex litigation.
The Company had an operating loss of $734,858 in the nine month period
ended March 31, 2000 and there can be no assurance that its operations will
reach profitability.
Cash was increased in the nine-month period by the collection in November
1999 of a receivable from Immunex in the amount of $3 million ($2,167,500,
net to the Company).
Liquidity and Capital Resources
- -------------------------------
At March 31, 2000, the Company had current assets of $10,056,989 including
cash and cash equivalents of $9,088,154 and had current liabilities of
$467,917. Cash was increased in the nine months ended March 31, 2000, by
the collection of a payment of $3 million ($2,167,500 after related fees)
from Immunex pursuant to settlement of patent litigation in Fiscal 1997.
A final payment of $1 million ($640,000 net to the Company) is due in
November 2000. Cash used in the nine-month period ended March 31, 1999 was
largely for operating expenses and the repurchase, for treasury, of
5,558,406 shares of the Company's Common Stock at a cost of $1,263,700.
Management believes that it will have sufficient assets to fund the
Company's current programs.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The table below presents, as of the end of the prior fiscal year, the
carrying values and estimated fair values of the Company's financial
instruments, none of which has been entered into for trading purposes. The
estimated fair values were determined based upon the terms of the various
instruments then and have not been subsequently revised.
<TABLE>
June 30, 1999
--------------------------------
Carrying Estimated
Description value fair value
- ------------------------------------- ----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 8,760,916 $ 8,760,916
Accounts receivable - trade 28,279 28,279
Accounts receivable - other current 2,942,361 2,942,361
Accounts receivable - other long term 931,440 826,415
Other current liabilities 775,484 775,484
Other non-current liabilities 270,796 231,396
</TABLE>
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
As part of the litigation settlement with Immunex, the Company was
assigned U.S. Patent No. 5,548,887 (the '887 patent). At present,
claims 8-12 stand rejected over scientific literature, principally
representing prior art considered, previously, by the U.S. Patent and
Trademark Office ("PTO"), during primary examination. Cistron has
pursued petitions and an appeal in an effort to have the rejection
withdrawn. While these efforts have thus far been unsuccessful, on
March 21, 2000, the PTO's Board of Patent Appeals and Interferences
remanded the case to the Examiner for reconsideration of the propriety
of the merits of the rejection and reconsideration of whether the
reexamination was properly granted in the first place.
Item 2. Changes in Securities
---------------------
a. Not applicable
b. Not applicable
c. During the quarter ended March 31, 2000, the Company issued an
aggregrate of 125,176 shares of its common stock to Richard S.
Dondero, a former employee and executive officer of the Company,
pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), which provides an exemption from
registration under the Securities Act. Mr. Dondero represented to
the Company in writing that he was acquiring the shares for
investment and the Company did not engage in any general
solicitation in connection with this option exercise. The
certificates for these shares were issued with a restrictive
legend indicating that the shares have not been registered under
the Securities Act.
During the quarter ended December 31, 1999, the Company issued
150,000 shares of its common stock to Thomas P. Carney, Ph.D., a
former director of the Company, also pursuant to the exemption
from registration afforded by Section 4(2) of the Securities Act.
Dr. Carney represented to the Company in writing that he was
acquiring the shares for investment and the Company did not engage
in any general solicitation in connection with this option
exercise. The certificates for these shares were issued with
a restrictive legend indicating that the shares have not been
registered under the Securities Act.
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
-----------------
On May 15, 2000, the Company relocated its offices to 239 New Road,
Parsippany, NJ 07054 where it will oversee its research and
development programs and pursue its strategic objectives.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibit.
27. Financial Data Schedule
b. Reports on Form 8-K.
On December 21, 1999, the Company filed a Current Report on Form 8-K,
disclosing the change of its executive officers effective
January 1, 2000 as disclosed in a Company press release dated
December 9, 1999.
On February 3, 2000, the Company filed a Current Report on Form 8-K,
disclosing the change in certify accountants dated as of January
28,2000 and subsequently on February 11, 2000 filed Amendment No. 1
to this Form 8-K to provide additional information as requested by
letter dated February 8, 2000 from the SEC.
On March 28,2000, the Company filed a Current Report on Form 8-K,
disclosing a) the Agreement and Plan of Merger by and among the
Company, Celltech Group plc and CGP Acquisition Corp. as dated
March 21, 2000 b) Amendment to License Agreement between the
Company and the Institutions dated as of March 21, 2000 and c)
Letter Agreement between Cistron and Genome Securities
(eMedsecurities, Inc) dated as of March 6, 2000.
<PAGE> 13
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: May 12, 2000 CISTRON BIOTECHNOLOGY, INC.
(Registrant)
/S/ISIDORE S. EDELMAN, M.D.
---------------------------
Isidore S. Edelman, M.D.
Chairman and Chief Executive
Officer
/S/JONATHAN E. ROTHSCHILD
-------------------------
Jonathan E. Rothschild
Chief Financial Office
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information taken from the
balance sheet as of March 31, 2000 (unaudited) and the statement of
operations for the nine-month period ended March 31,2000 (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, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 9,088,154
<SECURITIES> 0
<RECEIVABLES> 1,198,835
<ALLOWANCES> 230,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,056,989
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,074,921
<CURRENT-LIABILITIES> 467,917
<BONDS> 0
0
0
<COMMON> 303,156
<OTHER-SE> 9,303,848
<TOTAL-LIABILITY-AND-EQUITY> 10,074,921
<SALES> 52,690
<TOTAL-REVENUES> 643,980
<CGS> 142,417
<TOTAL-COSTS> 142,417
<OTHER-EXPENSES> 1,236,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (271,544)
<INCOME-PRETAX> (734,708)
<INCOME-TAX> 150
<INCOME-CONTINUING> (734,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (734,858)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
