<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[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 number 1-10392
-------------------------------------------------------
U.S. Bioscience, Inc.
- -----------------------------------------------------------------------------
(Exact name of Registrant as specified on its charter)
Delaware 23-2460100
- --------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Bridge, One Hundred Front St., West Conshohocken, PA 19428
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 832-0570
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
As of May 10, 1996, there were 22,733,600 shares of common stock outstanding.
Page 1 of 20 sequentially
numbered pages
-1-
<PAGE>
U.S. BIOSCIENCE, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in Stockholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II - Other Information
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Securities Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
-2-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 43,770,000 $ 41,618,800
Investments 3,002,700 3,977,400
Accounts receivable, net 1,601,900 802,500
Interest receivable 117,000 60,000
Inventories 2,295,400 2,165,100
Other 1,339,700 6,922,200
--------------- ---------------
Total current assets 52,126,700 55,546,000
Property, plant and equipment at cost, less accumulated depreciation 6,065,800 6,334,300
--------------- ---------------
Total assets $ 58,192,500 $ 61,880,300
=============== ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accrued compensation and related payroll taxes payable $ 960,200 $ 1,937,600
Accrued clinical grants payable 658,800 716,300
Accrued product manufacturing costs payable 383,700 384,300
Accrued marketing costs payable 166,100 125,900
Accrued professional fees payable 369,400 393,200
Line of credit 676,000 676,000
Current maturities of long-term debt 721,600 721,300
Accounts payable and other accrued liabilities 8,424,700 8,014,400
--------------- ---------------
Total current liabilities 12,360,500 12,969,000
Long-term liabilities:
Long-term debt, net of current maturities 2,367,500 2,587,600
Convertible debentures 8,825,000 16,500,000
Other long-term liabilities 1,112,100 1,035,800
--------------- ---------------
Total long-term liabilities 12,304,600 20,123,400
--------------- ---------------
Total liabilities 24,665,100 33,092,400
Stockholders' equity:
Preferred stock, $.005 par value-5,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value-50,000,000 shares authorized; 21,891,700
shares issued and outstanding at March 31, 1996, and 21,046,900 shares
issued and outstanding at December 31, 1995 218,900 210,500
Additional paid-in capital 141,428,900 133,157,700
Deficit accumulated during the development stage (108,363,000) (104,929,800)
Foreign currency translation adjustment 242,600 349,500
--------------- ---------------
Total stockholders' equity 33,527,400 28,787,900
--------------- ---------------
Total liabilities and stockholders' equity $ 58,192,500 $ 61,880,300
=============== ===============
</TABLE>
See accompanying notes.
-3-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------ PERIOD MAY 7, 1987
MARCH 31, (INCEPTION)
--------- THROUGH
1996 1995 MARCH 31, 1996
---- ---- --------------
<S> <C> <C> <C>
Revenues:
Net sales $ 2,962,600 $ 2,200,200 $ 28,115,800
Net investment income 683,900 379,400 25,733,900
Licensing, royalty and other income 180,000 62,400 25,919,300
------------- ------------- --------------
3,826,500 2,642,000 79,769,000
Expenses:
Cost of sales 873,500 742,100 7,399,900
Selling, general and administrative costs 3,291,800 3,247,400 80,941,800
Research and development costs 2,764,600 2,788,600 87,927,700
Provision for litigation -- -- 10,165,000
Interest expense 329,800 19,800 1,697,600
------------- ------------- --------------
7,259,700 6,797,900 188,132,000
------------- ------------- --------------
Net loss $ (3,433,200) $ (4,155,900) $ (108,363,000)
============= ============= ==============
Net loss per common share $ (0.16) $ (0.20)
============= =============
Weighted average number of common shares outstanding 21,413,000 20,385,400
============= =============
</TABLE>
See accompanying notes.
-4-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
Net loss $ (3,433,200) $ (4,155,900)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 274,700 308,000
Compensation element of stock option grants -- --
Loss (gain) on investments (1,100) 19,600
Amortization of debenture interest 270,000 --
Change in accounts receivable (799,500) (39,400)
Change in interest receivable (57,000) 8,800
Change in inventories (142,800) (151,000)
Change in other current assets 5,573,500 (101,500)
Change in current liabilities (92,800) (1,762,700)
Provision for litigation -- --
Change in other long-term liabilities 126,100 2,000
------------- ------------
Total adjustments 5,151,100 (1,716,200)
------------- ------------
Net cash provided by (used in) operating activities 1,717,900 (5,872,100)
Cash flows provided by (used in) investing activities:
Proceeds from marketable securities matured and sold 9,874,900 1,979,400
Purchase of marketable securities (8,899,100) --
Purchase of property, plant and equipment (158,800) (213,700)
------------- ------------
Net cash provided by (used in) investing activities 817,000 1,765,700
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securities -- --
Proceeds from exercise of stock options 334,600 --
Proceeds from loan -- (12,400)
Proceeds from line of credit -- --
Repayment of long-term debt (179,900) --
------------- ------------
Net cash provided by (used in) financing activities 154,700 (12,400)
Foreign currency translation adjustment (538,400) 34,500
------------- ------------
Net increase (decrease) in cash and cash equivalents 2,151,200 (4,084,300)
Cash and cash equivalents-beginning of period 41,618,800 11,681,900
------------- ------------
Cash and cash equivalents-end of period $ 43,770,000 $ 7,597,600
============= ============
Supplemental cash flow disclosure:
Interest paid to affiliate -- --
<CAPTION>
PERIOD MAY 7, 1987
(INCEPTION)
THROUGH
MARCH 31, 1996
--------------
<S> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
Net loss $ (108,363,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 4,272,900
Compensation element of stock option grants 5,303,400
Loss (gain) on investments 138,300
Amortization of debenture interest 270,000
Change in accounts receivable (1,601,800)
Change in interest receivable (117,000)
Change in inventories (2,318,100)
Change in other current assets (1,311,600)
Change in current liabilities 11,371,500
Provision for litigation 10,000,000
Change in other long-term liabilities 1,161,800
-----------------
Total adjustments 27,169,400
-----------------
Net cash provided by (used in) operating activities (81,193,600)
Cash flows provided by (used in) investing activities:
Proceeds from marketable securities matured and sold 3,124,279,000
Purchase of marketable securities (3,127,415,100)
Purchase of property, plant and equipment (9,993,000)
-----------------
Net cash provided by (used in) investing activities (13,129,100)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securities 128,348,700
Proceeds from exercise of stock options 6,550,800
Proceeds from loan 3,219,100
Proceeds from line of credit 676,000
Repayment of long-term debt (394,600)
-----------------
Net cash provided by (used in) financing activities 138,400,000
Foreign currency translation adjustment (307,300)
-----------------
Net increase (decrease) in cash and cash equivalents 43,770,000
Cash and cash equivalents-beginning of period --
-----------------
Cash and cash equivalents-end of period $ 43,770,000
=================
Supplemental cash flow disclosure:
Interest paid to affiliate $ 1,005,800
</TABLE>
See accompanying notes.
-5-
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 7, 1987 (INCEPTION) THROUGH MARCH 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK CLASS B STOCK
------------ ------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.005 per share of common stock
and $.005 per share of Class B stock) 9,000,000 $ 45,000 1,000,000 $ 5,000 $ 1,000,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1987 9,000,000 45,000 1,000,000 5,000 1,000,000
Net loss for the year ended December 31, 1988 -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1988 9,000,000 45,000 1,000,000 5,000 1,000,000
Proceeds from exercise of stock options 2,500 -- -- -- 400
Compensation related to stock options -- -- -- -- 305,900
Issuance of shares ($8.00 per share, less costs) 2,500,000 12,500 -- -- 14,061,400
Conversion of class B stock to common stock 1,000,000 5,000 (1,000,000) (5,000) --
Net loss for the year ended December 31, 1989 -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1989 12,502,500 62,500 -- -- 15,367,700
Proceeds from exercise of stock options 285,800 1,400 -- -- 143,500
Compensation related to stock options -- -- -- -- 269,000
Issuance of shares ($9.00 per share, less costs) 4,025,000 20,200 -- -- 33,009,700
Net loss for the year ended December 31, 1990 -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1990 16,813,300 84,100 -- -- 48,789,900
Proceeds from exercise of stock options 500,700 2,500 -- -- 3,349,600
Compensation related to stock options -- -- -- -- 1,038,900
Issuance of shares ($28.50 per share, less costs) 2,300,000 11,500 -- -- 61,444,300
Issuance of shares for a 2 for 1 stock dividend 19,614,000 98,000 -- -- (98,000)
Net loss for the year ended December 31, 1991 -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1991 39,228,000 196,100 -- -- 114,524,700
Proceeds from exercise of stock options 264,400 1,400 -- -- 1,336,400
Compensation related to stock options -- -- -- -- 1,452,400
Net loss for the year ended December 31, 1992 -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1992 39,492,400 197,500 -- -- 117,313,500
Proceeds from exercise of stock options 106,500 500 -- -- 614,300
Compensation related to stock options -- -- -- -- 906,900
Net loss for the year ended December 31, 1993 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1993 39,598,900 198,000 -- -- 118,834,700
Proceeds from exercise of stock options 75,300 400 -- -- 404,900
Class Action Settlement 1,096,600 5,500 -- -- 7,753,200
Compensation related to stock options -- -- -- -- 1,330,300
Net loss for the year ended December 31, 1994 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1994 40,770,800 203,900 -- -- 128,323,100
Proceeds from exercise of stock options 202,900 1,000 -- -- 359,900
Class Action Settlement -- -- -- -- 2,241,200
Proceeds from private placement of securities 1,120,100 5,600 -- -- 2,233,500
Net loss for the year ended December 31, 1995 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at December 31, 1995 42,093,800 210,500 -- -- 133,157,700
Proceeds from exercise of stock options 137,300 700 -- -- 333,900
Conversion of debentures 1,552,300 7,700 -- -- 7,937,300
Net loss for the three months ended March 31, 1996 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Conversion of shares to reflect the 1 for 2 reverse
stock split effective April 22, 1996 (21,891,700) -- -- -- --
---------- ---------- ---------- ---------- ------------
Balance at March 31, 1996 (unaudited) 21,891,700 $ 218,900 -- $ -- $141,428,900
========== ========== ========== ========== ============
TOTAL
ACCUM- STOCK-
ULATED OTHER HOLDERS'
DEFICIT EQUITY EQUITY
------- ------ --------
<S> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.005 per share of common stock
and $.005 per share of Class B stock) $ -- $ -- $ 1,050,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 (1,030,500) -- (1,030,500)
---------------- --------------- ----------------
Balance at December 31, 1987 (1,030,500) -- 19,500
Net loss for the year ended December 31, 1988 (1,556,800) -- (1,556,800)
---------------- --------------- ----------------
Balance at December 31, 1988 (2,587,300) -- (1,537,300)
Proceeds from exercise of stock options -- -- 400
Compensation related to stock options -- -- 305,900
Issuance of shares ($6.00 per share, less costs) -- -- 14,073,900
Conversion of class B stock to common stock -- -- --
Net loss for the year ended December 31, 1989 (5,743,300) -- (5,743,300)
---------------- --------------- ----------------
Balance at December 31, 1989 (8,330,600) -- 7,099,600
Proceeds from exercise of stock options -- -- 144,900
Compensation related to stock options -- -- 269,000
Issuance of shares ($9.00 per share, less costs) -- -- 33,029,900
Net loss for the year ended December 31, 1990 (4,924,900) -- (4,924,900)
---------------- --------------- ----------------
Balance at December 31, 1990 (13,255,500) -- 35,618,500
Proceeds from exercise of stock options -- -- 3,352,100
Compensation related to stock options -- -- 1,038,900
Issuance of shares ($28.50 per share, less costs) -- -- 61,455,800
Issuance of shares for a 2 for 1 stock dividend -- -- --
Net loss for the year ended December 31, 1991 (6,540,100) -- (6,540,100)
---------------- --------------- ----------------
Balance at December 31, 1991 (19,795,600) -- 94,925,200
Proceeds from exercise of stock options -- -- 1,337,800
Compensation related to stock options -- -- 1,452,400
Net loss for the year ended December 31, 1992 (20,225,800) -- (20,225,800)
---------------- --------------- ----------------
Balance at December 31, 1992 (40,021,400) -- 77,489,600
Proceeds from exercise of stock options -- -- 614,800
Compensation related to stock options -- -- 906,900
Net loss for the year ended December 31, 1993 (40,629,600) -- (40,629,600)
Foreign currency translation adjustment -- (291,800) (291,800)
---------------- --------------- ----------------
Balance at December 31, 1993 (80,651,000) (291,800) 38,089,900
Proceeds from exercise of stock options -- -- 405,300
Class Action Settlement -- -- 7,758,700
Compensation related to stock options -- -- 1,330,300
Net loss for the year ended December 31, 1994 (24,041,000) -- (24,041,000)
Foreign currency translation adjustment -- 395,700 395,700
---------------- --------------- ----------------
Balance at December 31, 1994 (104,692,000) 103,900 23,938,900
Proceeds from exercise of stock options -- -- 360,900
Class Action Settlement -- -- 2,241,200
Proceeds from private placement of securities -- -- 2,239,100
Net loss for the year ended December 31, 1995 (237,800) -- (237,800)
Foreign currency translation adjustment -- 245,600 245,600
---------------- --------------- ----------------
Balance at December 31, 1995 (104,929,800) 349,500 28,787,900
Proceeds from exercise of stock options -- -- 334,600
Conversion of debentures -- -- 7,945,000
Net loss for the three months ended March 31, 1996 (3,433,200) -- (3,433,200)
Foreign currency translation adjustment -- (106,900) (106,900)
Conversion of shares to reflect the 1 for 2 reverse
stock split effective April 22, 1996 -- -- --
---------------- --------------- ----------------
Balance at March 31, 1996 (unaudited) $ (108,363,000) $ 242,600 33,527,400
================ =============== ================
</TABLE>
See accompanying notes.
-6-
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The company is a pharmaceutical company specializing in the development and
commercialization of products for patients with cancer and allied diseases. For
accounting purposes, the company is considered a "development stage enterprise."
Through March 31, 1996, the company's revenues have been derived principally
from product sales of Hexalen(R), NeuTrexin(R), and Ethyol(R), licensing fees
for rights to develop and market certain products principally in the United
States, and investment income. Expenses incurred have been primarily for the
development of its drugs and related therapies, marketing and sales activities,
and corporate organizational and administrative activities.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited information -- The financial information for the three month
period ended March 31, 1996 and 1995, and the period from May 7, 1987
(inception) through March 31, 1996 included herein is unaudited. The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles applicable to interim periods.
Such information includes all adjustments, consisting of adjustments of a normal
and recurring nature, which, in the opinion of the company, are necessary for a
fair presentation of the company's consolidated financial position and the
results of its operations and cash flows.
Principles of Consolidation -- The consolidated financial statements
include the accounts of U.S. Bioscience, Inc. and its wholly owned subsidiaries,
USB Pharma B.V., and USB Pharma Ltd. All significant intercompany accounts and
transactions are eliminated in consolidation.
Inventories -- Inventories are stated at the lower of cost (first in, first
out) or fair value. Inventories consist of:
<TABLE>
<CAPTION>
March 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Raw materials $ 469,600 $ 813,300
Work-in-process 1,485,400 893,000
Finished goods 340,400 458,800
---------- ----------
Total $2,295,400 $2,165,100
========== ==========
</TABLE>
Property, Plant and Equipment -- Buildings, furniture, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Buildings, furniture and equipment are depreciated by the
straight-line method over their useful lives. Leasehold improvements are
depreciated by the straight-line method over the shorter of their useful lives
or the life of the lease. All assets are depreciated under accelerated methods
for federal income tax purposes.
<TABLE>
<CAPTION>
Property, plant and equipment consists of:
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Land, buildings, and leasehold improvements $ 2,040,800 $ 2,106,500
Equipment, furniture and fixtures 8,207,200 8,173,500
Accumulated depreciation (4,182,200) (3,945,700)
------------ ------------
Property, plant and equipment, net $ 6,065,800 $ 6,334,300
============ ============
</TABLE>
-7-
<PAGE>
Reverse Stock Split -- On April 22, 1996 the stockholders of the company,
at the annual meeting of stockholders, approved an amendment to the company's
Certificate of Incorporation pursuant to which the number of authorized shares
of common stock was reduced from 100,000,000 shares to 50,000,000 shares, and
the par value of a share of common stock was increased from $.005 per share to
$.01 per share. In connection with that amendment, there was a 1-for-2 reverse
split of the common stock, thereby reducing the number of outstanding shares of
common stock by 50%. All "share" and "per share" amounts reflected in this
report on Form 10Q have been adjusted to reflect the 1-for-2 reverse stock
split.
<TABLE>
<CAPTION>
Long-Term Debt --
Long-term debt consists of:
March 31, December 31,
1996 1996
----------------------------
<S> <C> <C>
MELF Equipment Loan $ 306,000 $ 323,600
Mortgage Loan 633,100 685,300
Term Loan 2,150,000 2,300,000
Convertible Debentures 8,825,000 16,500,000
----------------------------
11,914,100 19,808,900
Less Current Portion 721,600 721,300
----------------------------
Long-Term Debt $11,192,500 $19,087,600
============================
</TABLE>
During the first quarter of 1996, the investors who purchased the unsecured
convertible debentures in the December 1995 private placement, converted
$7,945,000 of principal and accrued interest into 776,170 shares of the
company's Common Stock (1,552,339 shares before the reverse stock split). As of
May 1, 1996 the investors had converted the remaining $8,825,000 into an
additional 797,408 shares of the company's Common Stock.
Additionally, all information should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and Notes to Financial Statements
included in the company's Annual Report on Form 10-K for the year ended
December 31, 1995. Operating results for the three month period ended
March 31, 1996 are not necessarily indicative of the results that may be
obtained for the entire year.
-8-
<PAGE>
U.S. BIOSCIENCE, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Operations for the three months ended March 31, 1996, consisted primarily
of preparations for the launch of Ethyol in the United States with co-promotion
partner ALZA Corporation ("ALZA"), ongoing marketing of Hexalen(R) and
NeuTrexin(R) in the United States, the preparation of and follow-up activities
on regulatory filings for Ethyol(R) in the United States, Canada and Europe,
continuing clinical trials and product development of Ethyol, NeuTrexin,
Hexalen, AZQ and FddA, and business development activities in the United States
and Europe.
The company received United States Food and Drug Administration approval of
it's NDA for Ethyol in December 1995 and the company began co-promotion of the
product with co-promotion partner ALZA in April 1996 concurrent with the
commercial availability of Ethyol in the U.S. market.
The company also received regulatory approval for Ethyol in several
European countries, and its marketing partner for European territories, Scherico
Ltd., an affiliate of Schering-Plough Corporation ("Scherico"), launched Ethyol
in Germany and the United Kingdom in the second quarter of 1995, in France in
the third quarter of 1995, and plans to begin sales and marketing efforts in
other European countries when regulatory approvals and, if necessary, local
pricing and reimbursement approvals, are received. Ethyol was approved by
Canadian regulatory authorities in late April 1996, where Eli Lilly has
marketing rights to the product.
The company believes that its expenditures for research and development,
marketing, capital equipment and facilities will continue to exceed revenues as
a result of (i) further clinical trials and regulatory approvals for Ethyol,
NeuTrexin and Hexalen, (ii) the marketing of Hexalen, NeuTrexin and Ethyol and
marketing preparation for its other drugs, (iii) continuing Ethyol launches in
Europe where the company has received regulatory approval and shares initial
profits and losses with its marketing partner, Scherico, (iv) expansion of
clinical and preclinical testing of drug compounds, including expanded
indications for existing drugs and (v) development and enhancement of
manufacturing and analytical capabilities.
Results of Operations
Three months ended March 31, 1996
Product sales increased to $2,962,600 in the first three months of 1996 as
compared to $2,200,200 in the prior year period, principally due to the shipment
of initial quantities of Ethyol, the company's cytoprotective agent, to ALZA
Corporation, the company's U.S. co-promotion partner. Ethyol was made
commercially available in the United States in April 1996.
Net investment income increased to $683,900 in the first quarter of 1996 as
compared to $379,400 in the corresponding 1995 period due to increased interest
income resulting from the increased portfolio balance. The increased portfolio
balance reflects the initial distribution fee received from ALZA as part of the
Ethyol U.S. co-promotion agreement and a private placement completed in December
1995.
Licensing, royalty and other income increased to $180,000 for the three
month period ended March 31, 1996 from $62,400 in the prior year period due to
increased contract manufacturing and analytical services revenue generated by
utilizing available capacity of the company's manufacturing plant located in The
Netherlands and its laboratory located in Exton, Pennsylvania.
-9-
<PAGE>
Cost of sales, which consists of product manufacturing, testing,
distribution and royalty expenses, increased due to the increase in sales. As a
percentage of sales, cost of sales in the three month period ended March 31,
1996, decreased to 30% from 34% in the prior year period due principally to the
initial shipment of Ethyol to ALZA noted above. No sales to ALZA occurred in
the 1995 period whereas lower margin sales to Scherico, the company's European
distributor of Ethyol, accounted for a greater percentage of total sales in the
prior year period.
Selling, general and administrative costs for the first quarter of 1996
increased marginally to $3,291,800 from $3,247,400 in the corresponding 1995
period. The small increase of $44,400 is principally due to the accrual of the
company's share of the European first quarter 1996 operating loss of $416,000
related to its agreement with Scherico. This increase is largely offset by
reductions in personnel expenses of $220,200, license and patent fees of
$116,700 and facility rental expenses of $70,200.
Research and development costs for the three months ended March 31, 1996
decreased to $2,764,600 from $2,788,600 in the corresponding 1995 period. The
decrease is principally due to lower clinical grants of $172,100 reflecting a
more focused clinical research program and greater absorption of manufacturing
overhead expenses into inventory of $91,900. These were partly offset by
increased personnel and consulting expenses of $125,600 and higher travel costs
of $69,600.
Interest expense increased to $329,800 for the first quarter of 1996 from
$19,800 in the prior year first quarter due principally to interest payable on
the unsecured convertible debentures issued in the December 1995 private
placement.
The net loss for the three months ended March 31, 1996 was $3,433,200 or
$0.16 loss per common share as compared to $4,155,900 or $0.20 loss per common
share in the 1995 period.
Liquidity and Capital Resources
From time to time the company may make forward-looking statements
concerning anticipated business and/or financial developments. In order that
the company may rely on a safe harbor against liability for forward-looking
statements made available by the Private Securities Litigation Reform Act of
1995, the company cautions readers that many factors could cause actual results
to differ materially from those in any forward-looking statement that the
company may make, including the following: The company is dependent on FDA
approval before it can commercialize its pharmaceutical products. The approval
process is lengthy and it is very difficult to predict with assurance the time
required to complete the process or the eventual outcome. Commercial success for
the company's products will depend on its ability to enter into arrangements
with other entities for marketing the products, and the success of the marketing
efforts by such other companies. The company's ability to develop and
commercialize new products and to continue its other operations at desired
levels depends on the availability of adequate funds, generated either
internally or from other sources. Other factors discussed in this report.
Since its inception in 1987, the company has financed operations
principally through the sale of equity capital, issuance of unsecured and
secured debt, investment income, sales of its drug products, Hexalen, NeuTrexin
and Ethyol, and revenues received through distribution and sublicense
agreements. As of March 31, 1996, the company's cash and cash equivalents and
marketable securities totaled $46,772,700. The company's investment portfolio
consists of securities issued by the U.S. Government or its agencies and
investment grade corporate debt instruments.
During the first three months of 1996, net cash provided by operations
amounted to $1,717,900
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<PAGE>
principally due to the net effect of factors discussed above under "Results of
Operations" and receipt of the final $6 million installment of the initial
distribution fee paid by ALZA pursuant to the U.S. Ethyol distribution
agreement. Until such time as one or more of the company's currently approved
products achieves significant sales or other revenue and currently approved
products receive regulatory approval to expanded indications currently under
development which result in increased revenues, the company's cash position will
continue to be reduced due principally to expenditures in research, product
development, marketing, and selling and administrative activities. Failure to
obtain additional regulatory approvals on products currently in development and
to achieve significant sales, will have a material adverse effect on the
company. Additionally, the level of future product sales will also depend on
several factors, including product acceptance, market penetration, competitive
products, the performance of the company's licensees and distributors, and the
healthcare system existing in each market where the company's products are or
may become commercially available.
The company's net capital expenditures were $158,800 in the first three
months of 1996 and total $9,993,000 since inception. In April 1993, the company
purchased a sterile products production facility in The Netherlands. Validation
work and pilot production on this new facility were completed in 1995. The
facility received regulatory approval for product manufacture and distribution
from the Dutch regulatory authority in June 1994 to manufacture the company's
products for distribution in the European Community, and the facility was
approved by the FDA to manufacture NeuTrexin for the U.S. market in May 1995. A
mortgage loan of approximately $680,000 relating to this facility was obtained
in May 1994. The purchase price for this facility was $2,250,000 and $2,845,500
in capital improvements have been made since its purchase to make the facility
operational and expand its production capacity. Further capital expenditures,
estimated at $500,000, are planned in 1996.
The funds raised in the December 1995 private placement ($19 million, net)
and the initial distribution fees from ALZA ($20 million) provided the company
with approximately $39 million in working capital, which the company believes
will be sufficient to cover operating expenses at current levels for the
foreseeable future. The company is hopeful that its products will, in the near
future, generate sufficient sales to provide meaningful cash resources, although
no assurance can be given that they will do so. The company is also hopeful
that the company will in the future receive further regulatory approvals and
that such approvals will increase sales. However, no assurance can be given
that further regulatory approvals will be obtained in a timely manner, if ever,
or that the company will have adequate financial resources to commercialize its
products when approved or that product sales will be sufficient to cover
operating expenses. Although the company will from time to time explore
additional sources of financing, there can be no assurance that the company will
be successful in obtaining such financing on terms acceptable to the company.
The company's future liquidity and capital requirements are dependent upon
several factors, including, but not limited to, its success in generating
significant revenues from sales; the performance of its sublicensees and
distributors under sublicense and distribution arrangements for sales of its
products; the time and cost required to manufacture and market its products; the
time and cost required to obtain regulatory approvals, including expanded
labelling for its products which are already commercially available; obtaining
the rights to additional commercially viable compounds; competitive
technological developments; additional governmental-imposed regulation and
control; and changes in healthcare systems which affect reimbursement, pricing
or availability of drugs and market acceptance of drugs. The above factors may
also affect realization of certain assets currently held by the company,
principally investments in plant, equipment and inventory.
In 1995, Scherico, the company's European distributor for its
cytoprotective agent, Ethyol, launched Ethyol in several European markets where
regulatory approvals have been received. Under the terms of its agreement with
Scherico, the company shares in operating profits/losses generated from
marketing and sales of Ethyol in Germany, United Kingdom, Spain, Italy and
France (the "Major Markets") for a period of up to
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<PAGE>
two years from November 23, 1994, the date of approval of Ethyol in the United
Kingdom. The company's share of operating losses, generated from the Major
Markets was approximately $4.2 million in 1995. The limit on operating losses,
if any, attributable to the Major Markets is limited to approximately $1.7
million for 1996 based on an operating plan for 1996. The company paid the 1995
operating loss share ($4.2 million) in April 1996. The company will share in
operating profits, if any, generated from sales of Ethyol in the other countries
in the European Territories outside the Major Markets in which Ethyol is
launched by Scherico, but is not exposed to operating losses, if any, generated
in such countries. Profits or losses under the agreement with Scherico are
affected by the same uncertainties noted in the preceding paragraphs. The
company is hopeful that the commercialization of its drug product Ethyol will be
financially successful in Europe. However, no assurance can be given that the
company will achieve meaningful revenues under this agreement.
The company has been unprofitable since its inception and expects to incur
additional operating losses until such time as substantial sales are realized
and further regulatory approvals are obtained, although the distribution fees
from ALZA Corporation did bring the company close to a break-even position for
calendar 1995. The company's losses may increase as the company continues its
commercialization, research and development activities, and such losses may
fluctuate from quarter to quarter. There can be no assurance that the company
will ever achieve significant revenues or profitable operations. For the
period from May 7, 1987 (inception) through March 31, 1996, the company had an
accumulated deficit of $108,363,000.
-12-
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings.
Not applicable
Item 2. Changes in Securities.
On April 22, 1996 the stockholders of the company, at the annual meeting of
stockholders, approved an amendment to the Company's Certificate of
Incorporation pursuant to which the number of authorized shares of common stock
was reduced from 100,000,000 shares to 50,000,000 shares, and the par value of a
share of common stock was increased from $.005 per share to $.01 per share. In
connection with that amendment, there was a 1-for-2 reverse split of the common
stock, thereby reducing the number of outstanding shares of common stock by 50%.
Each stock certificate representing outstanding shares of common stock of
the company also represents the same number of Rights (to purchase, under
certain circumstances, shares of Series A Junior Preferred Stock of the Company)
as the number of shares of common stock represented by such stock certificate.
Pursuant to the terms of the Rights Agreements governing the Rights, the effect
of the 1-for-2 reverse split of the Company's common stock was to increase the
number of shares of Series A Junior Preferred Stock of the Company purchasable
upon exercise of a Right, should it become exercisable, from one one-hundredth
(1/100) of a share of Series A Junior Preferred Stock to two one-hundredths
(2/100) of a share of Series A Junior Preferred Stock, and to increase the
exercise price of a Right from $15 to $30.
There are currently outstanding Warrants to purchase shares of common stock
of the Company. As a consequence of the 1-for-2 reverse split of the Company's
common stock, pursuant to the terms of the Warrant Agreement between the Company
and Chemical Mellon Shareholder Services, L.L.C., the warrant agent, dated as of
June 6, 1994, the Warrant exercise price and the number of Warrant shares
exercisable upon exercise of a Warrant certificate were automatically
proportionally adjusted to double the exercise price to purchase one share of
common stock from $9.20 per share to $18.40 per share, and to reduce the number
of shares purchasable upon exercise of a Warrant by one-half.
A restated description of the Company's common stock, Rights and Warrants
is set forth below as follows:
Common Stock
- ------------
The Company is authorized to issue 55,000,000 shares, consisting of
50,000,000 shares of Common Stock, $.01 par value (the "Common Stock"), and
5,000,000 shares of Preferred Stock, $.005 par value (the "Preferred Stock").
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation and the Delaware General Corporation Law. The following summary
is qualified in its entirety by reference thereto.
Holders of Common Stock are entitled to receive, as, when, and if declared
by the Board of Directors, from time to time, such dividends, other
distributions in cash, stock or property of the Company out of assets or funds
of the Company legally available therefor. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, the holders of Common
Stock will be entitled to share ratably in its assets remaining after provision
for payment of creditors, subject to the rights of any Preferred Stock then
outstanding. Holders of Common Stock do not have statutory preemptive rights to
purchase additional shares.
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<PAGE>
Holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Shares
of Common Stock do not have cumulative voting rights, which means that the
holders of more than 50% of such shares voting for the election of directors can
elect 100% of the directors if they choose to do so and, in such event, the
holders of the remaining shares so voting will not be able to elect any
directors. Holders of Common Stock do not have any conversion, redemption or
preemptive rights. In the event of the dissolution, liquidation or winding up
of the Company, holders of Common Stock will be entitled to share ratably,
together with any participating preferred shares then outstanding, in any assets
remaining after the satisfaction in full of the prior rights of creditors,
including holder of Company indebtedness, and the liquidation preference of any
preferred shares then outstanding.
Rights to Purchase Series A Junior Preferred Stock
- --------------------------------------------------
On May 19, 1995, the Board of Directors of the Company declared a dividend
of one Preferred Stock Purchase Right (the "Right(s)") for each outstanding
share of Common Stock, par value $0.005 per share, of the Company. Each Right
entitles the registered holder to purchase from the Company one one-hundredth
(1/100) of a share of a new series of preferred shares of the Company,
designated as Series A Junior Preferred Stock ("Preferred Stock"), at a price of
$15 per one one-hundredth (1/100) of a share (the "Exercise Price"), subject to
certain adjustments. The description and terms of the Rights are set forth in a
Rights Agreement, dated as of May 19, 1995 (the "Rights Agreement"), between the
Company and Chemical Mellon Shareholder Services L.L.C., as Rights Agent
("Rights Agent").
Effective the close of business April 22, 1996 the Certificate of
Incorporation of the Company was amended to effect a 1-for-2 reverse stock split
of the Company's Common Stock. As part of the reverse split the par value of
the Common Stock was increased from $.005 per share to $.01 per share. The
effect of the 1-for-2 reverse stock split on the Rights was to increase the
number of shares of Series A Junior Preferred Stock of the Company purchasable
upon exercise of a Right, should it become exercisable, from one one-hundredth
(1/100) of a share of Series A Junior Preferred Stock to two one-hundredths
(2/100) of a share of Series A Junior Preferred Stock, and to increase the
exercise price of a Right from $15 to $30. Initially the Rights were not
exercisable, certificates were not sent to stockholders, and the Rights
automatically trade with the Common Stock.
The Rights, unless earlier redeemed by the Board of Directors, will become
exercisable upon the close of business on the day (the "Distribution Date")
which is the earlier of (i) the tenth day following a public announcement that a
person or group of affiliated or associated persons, with certain exceptions set
forth below, has acquired beneficial ownership of 15% or more of the outstanding
voting stock of the Registrant (an "Acquiring Person") and (ii) the tenth
business day (or such later date as may be determined by the Board of Directors
prior to such time as any person or group of affiliated or associated persons
becomes an Acquiring Person) after the date of the commencement or announcement
of a person's or group's intention to commence a tender or exchange offer the
consummation of which would result in the ownership of 30% or more of the
Company's outstanding voting stock (even if no shares are actually purchased
pursuant to such offer); prior thereto, the Rights would not be exercisable,
would not be represented by a separate certificate, and would not be
transferable apart from the Company's Common Stock, but will instead be
evidenced, with respect to any of the Common Stock certificates outstanding as
of May 29, 1995, by such Common Stock certificate with a copy of the Summary of
Rights attached thereto. An Acquiring Person does not include (A) the Company,
(B) any subsidiary of the Company, (C) any employee benefit plan or employee
stock plan of the Company or of any subsidiary of the Company, or any trust or
other entity organized, appointed, established or holding Common Stock for or
pursuant to the terms of any such plan or (D) any person or group whose
ownership of 15% or more of the shares of voting stock of the Company then
outstanding results solely from (i) any action or transaction or transactions
approved by the Board of Directors before such person or group became an
Acquiring Person or (ii) a reduction in the number of issued and outstanding
shares of voting stock of the Company pursuant to a transaction or transactions
approved by the Board of Directors (provided that any person or group that does
not become an Acquiring Person by reason of clause (i) or (ii)
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<PAGE>
above shall become an Acquiring Person upon acquisition of an additional 1% of
the Company's voting stock unless such acquisition of additional voting stock
will not result in such person or group becoming an Acquiring Person by reason
of such clause (i) or (ii)).
Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Stock certificates issued after May 29, 1995 will contain a
legend incorporating the Rights Agreement by reference. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any of the Company's Common Stock certificates outstanding as of
May 29, 1995 with or without a copy of the Summary of Rights attached, will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Registrant's Common
Stock as of the close of business on the Distribution Date and such separate
certificates alone will evidence the Rights from and after the Distribution
Date.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on May 19, 2005, unless earlier redeemed by
the Company as described below.
The Preferred Stock is non-redeemable and, unless otherwise provided in
connection with the creation of a subsequent series of preferred stock,
subordinate to any other series of the Company's preferred stock. The Preferred
Stock may not be issued except upon exercise of Rights. Each share of Preferred
Stock will be entitled to receive when, as and if declared, a quarterly dividend
in an amount equal to the greater of $1.00 per share and 50 times the cash
dividends declared on the Company's Common Stock. In addition, the Preferred
Stock is entitled to 50 times any non-cash dividends (other than dividends
payable in equity securities) declared on the Common Stock, in like kind. In
the event of liquidation, the holders of Preferred Stock will be entitled to
receive for each share of Series A Preferred Stock, a liquidation payment in an
amount equal to the greater of $1,500 or 50 times the payment made per share of
Common Stock. Each share of Preferred Stock will have 50 votes, voting together
with the Common Stock. In the event of any merger, consolidation or other
transaction in which Common Stock is exchanged, each share of Preferred Stock
will be entitled to receive 50 times the amount received per share of Common
Stock. The rights of Preferred Stock as to dividends, liquidation and voting
are protected by anti-dilution provisions.
The number of shares of Preferred Stock issuable upon exercise of the
Rights, and the Exercise Price, are subject to certain adjustments from time to
time in the event of a stock dividend on, or a subdivision or combination of,
the Common Stock. The Exercise Price for the Rights is subject to adjustment in
the event of extraordinary distributions of cash or other property to holders of
Common Stock.
Unless the Rights are earlier redeemed or the transaction is approved by
the Board of Directors and the Continuing Directors (as defined in the Rights
Agreement), in the event that, after the time that the Rights become
exercisable, the Company were to be acquired in a merger or other business
combination (in which any shares of the Company's Common Stock are changed into
or exchanged for other securities or assets) or more than 50% of the assets or
earning power of the Company and its subsidiaries (taken as a whole) were to be
sold or transferred in one or a series of related transactions, the Rights
Agreement provides that proper provision will be made so that each holder of
record of a Right will from and after such date have the right to receive, upon
payment of the Exercise Price, that number of shares of common stock of the
acquiring Company having a market value at the time of such transaction equal to
two times the Exercise Price. In addition, unless the Rights are earlier
redeemed, if a person or group (with certain exceptions) becomes the beneficial
owner of 15% or more of the Company's voting stock (other than pursuant to a
tender or exchange offer (a "Qualifying Tender Offer") for all outstanding
shares of Common Stock that is approved by the Board of Directors, after taking
into account the long-term value of the Company and all other factors they
consider relevant in the circumstances), the Rights Agreement provides that
proper provision will be made so that each holder of record of a Right, other
than the Acquiring Person (whose Rights will thereupon become null and void),
will thereafter have the right to receive, upon payment of the Exercise Price,
that
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<PAGE>
number of shares of the Company's Preferred Stock having a market value at the
time of the transaction equal to two times the Exercise Price (such market value
to be determined with reference to the market value of the Company's Common
Stock as provided in the Rights Agreement).
Fractions of shares of Preferred Stock (other than fractions that are
integral multiples of one one-hundredth (1/100) of a share) may, at the election
of the Company, be evidenced by depositary receipts. The Company's may also
issue cash in lieu of fractional shares which are not integral multiples of one
one-hundredth (1/100) of a share.
At any time on or prior to the close of business on the tenth day after the
time that a person has become an Acquiring Person (or such later date as a
majority of the Board of Directors and a majority of the Continuing Directors
may determine), the Company may redeem the Rights in whole, but not in part, at
a price of $.001 per Right ("Redemption Price"). The Rights may be redeemed
after the time that any Person has become an Acquiring Person only if approved
by a majority of the Continuing Directors. Immediately upon the effective time
of the action of the Board of Directors of the Company authorizing redemption of
the Rights, the right to exercise the Rights will terminate and the only right
of the holders of the Rights will be to receive the Redemption Price.
For as long as the Rights are then redeemable, the Company may, except with
respect to the redemption price or date of expiration of the Rights, amend the
Rights in any manner, including an amendment to extend the time period in which
the Rights may be redeemed. At any time when the Rights are not then
redeemable, the Company may amend the Rights in any manner that does not
materially adversely affect the interests of holders of the Rights as such.
Amendments to the Rights Agreement from and after the time that any Person
becomes an Acquiring Person requires the approval of a majority of the
Continuing Directors (as provided in the Rights Agreement).
Until a Right is exercised, the holder, as such, will have no rights as a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group who attempts to acquire the Company on
terms not approved by the Company's Board of Directors. The Rights should not
interfere with any merger or other business combination approved by the Board
since they may be redeemed by the Company at $.001 per Right at any time until
the close of business on the tenth day (or such later date as described above)
after a person or group has obtained beneficial ownership of 15% or more of the
voting stock.
The form of Rights Agreement between the Company and Chemical Mellon
Shareholder Services, L.L.C., as rights agent, specifying the terms of the
Rights, which includes as Exhibit A the form of Summary of Rights to Purchase
Series A Junior Preferred Stock, as Exhibit B the form of Right Certificate and
as Exhibit C the form of Certificate of Designations of the Company setting
forth the terms of the Preferred Stock are incorporated herein by reference to
the Company's Current Report on Form 8-K dated June 7, 1995. The foregoing
description of the Rights is qualified by reference to such exhibits.
Warrants to Purchase Common Stock
- ---------------------------------
On April 24, 1995 the Company issued 1,096,634 Warrants (the "Warrants") to
purchase the Company's Common Stock pursuant to the provisions of a Warrant
Agreement dated as of June 6, 1994 between the Company and Chemical Mellon
Shareholder Services, L.L.C. as Warrant Agent. After adjustment to reflect the
1-for-2 reverse split of the Company's Common Stock effective the close of
business April 22, 1996, each two Warrants entitle the holder thereof to
purchase one share of Common Stock at a price of $18.40 per share (the "Exercise
Price").
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<PAGE>
Warrants may be exercised at any time after April 24, 1995 and before 5:00
p.m., New York City time on April 24, 1998. The holder of Warrants may exercise
them by surrendering them, together with payment of the Exercise Price, at the
office of the Warrant Agent. No holder of Warrants will be entitled to receive
any dividends paid on the Common Stock prior to the exercise of the Warrants
and, upon the exercise of some or all of the Warrants, a Warrant holder will
only be entitled to receive dividends paid on the shares of Common Stock
issuable to such holder prior to the record date for such dividends.
The Warrants contain customary terms and include customary anti-dilution
provisions, including (i) adjustments for changes in capital stock of the
Company (i.e., if the Company: (1) pays a dividend or makes a distribution on
its Common Stock in shares of its Common Stock; (2) subdivides its outstanding
shares of Common Stock into a greater number of shares; (3) combines its
outstanding shares of Common Stock into a smaller number of shares; (4) makes a
distribution on its Common Stock in shares of its capital stock other than
Common Stock; or (5) issues by reclassification of its Common Stock any shares
of its capital stock; (ii) adjustments for any issuance by the Company of
certain rights (i.e., If the Company distributes any rights, options or warrants
to all holders of its Common Stock entitling them for a period expiring within
60 days after the record date to purchase shares of Common Stock at a price per
share less than the current market price per share on that record date); and
(iii) adjustments for certain other distributions (i.e., if the Company
distributes to all holders of its Common Stock any of its assets, debt
securities, preferred stock, or any rights or warrants to purchase debt
securities, preferred stock, or other securities of the Company).
No adjustment in the Exercise Price need be made unless the adjustment
would require an increase or decrease of at least 1% in the Exercise Price. Any
adjustments that are not made shall be carried forward and taken into account in
any subsequent adjustment.
If the Company consolidates or merges with or into, or transfers or leases
all or substantially all its assets to, any person, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind and
amount of securities, cash, or other assets which the holder of a Warrant would
have owned immediately after the consolidation, merger, transfer or lease if the
holder had exercised the Warrant immediately before the effective date of the
transaction. Whether or not the Warrants are then exercisable, concurrently
with the consummation of such transaction, the corporation formed by or
surviving any such consolidation or merger if other than the Company, or the
person to which such sale or conveyance shall have been made, shall enter into a
supplemental Warrant Agreement so providing and further providing for
adjustments in accordance with the Warrant Agreement to the maximum extent
possible.
The form of Warrant Agreement between the Company and the Warrant Agent is
incorporated herein by reference to the Company's Registration Statement on
Form 8-A filed with the Securities and Exchange Commission on April 11, 1995, to
which the Warrant Agreement constitutes Exhibit 10. The foregoing description
of the Warrants is qualified by reference to such exhibit.
General
- -------
Shares of Preferred Stock may be issued from time to time at the discretion
of the Board of Directors without stockholder approval. The Board of Directors
is authorized to issue such shares in different series and to fix all of the
rights, preferences and qualifications of each such series (including voting
rights). Preferred Stock with voting rights and/or conversion rights could
dilute the voting power and/or equity of the holders of the Common Stock. Also,
the holders of Preferred Stock would normally be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
the Company before any payment is made to the holders of Common Stock.
Generally, Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
(i) prior
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<PAGE>
to the date such stockholder became an interested stockholder, the transaction
was approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
outstanding voting stock, or (iii) on or after the date such stockholder became
an interested stockholder the business combination is approved by the board and
by the affirmative vote of holders of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. A "business
combination" includes mergers, certain asset sales and certain other
transactions involving the issuance of stock or otherwise increasing the
interested stockholder's proportionate ownership of the corporation or the
receipt by the interested stockholder of certain financial benefits. An
"interested stockholder" is a person who together with affiliates and associates
owns (or within three years, did own) 15% or more of the corporation's voting
stock.
The Common Stock and the Warrants are presently listed on the American
Stock Exchange.
Chemical Mellon Shareholder Services, L.L.C. is the transfer agent and
registrar for the Common Stock and for the Warrants.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On April 22, 1996 the company held its annual meeting of stockholders. At
the meeting, the stockholders voted on the election of the eight members of the
company's Board of Directors. The vote "FOR" and "WITHHELD" for each candidate
was as follows:
<TABLE>
<CAPTION>
Number of Votes Number of Votes
Name of Nominee FOR Nominee WITHHELD from Nominee
- --------------------------------------------------------------
<S> <C> <C>
Robert L. Capizzi 37,693,719 469,075
Paul Calabresi 37,689,852 472,942
Robert I. Kriebel 37,695,158 467,636
Douglas J. MacMaster 37,676,537 486,257
Allen Misher 37,688,852 473,942
Philip S. Schein 37,660,884 501,910
Jonah Shacknai 37,675,274 487,520
Betsey Wright 37,664,570 498,224
</TABLE>
At the meeting the stockholders also voted on a proposed amendment to
Article Four of the company's Certificate of Incorporation to effect a reverse
stock split in which each two shares Common Stock of the company, par value
$.005 per share, whether issued and outstanding or held in treasury, will be
reclassified and changed into one share of new Common Stock of the company, par
value $.01 per share. The amendment was passed by the stockholders and reduces
the number of authorized shares of Common Stock from 100 million to 50 million
shares and increases the par value of the Common Stock from $.005 per share to
$.01 per share. The votes "FOR", "AGAINST" and "ABSTAIN" as well as the "THE
BROKER NO VOTES" were as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAIN BROKER NO VOTES
- ------------ ------------- ------- ---------------
<S> <C> <C> <C>
35,798,617 1,928,747 304,357 131,073
</TABLE>
Item 5. Other Information.
Not applicable.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Not applicable.
b. There were no reports on Form 8-K filed during the quarter for
which this report is filed.
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<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
U.S. BIOSCIENCE, INC.
Date: May 13, 1996 By: /s/ Robert I. Kriebel
-------------------------------
Robert I. Kriebel
Senior Vice President
Finance and Administration
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS OF U.S.
BIOSCIENCE, INC. FOR THE PERIOD(S) INDICATED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 43,770,000
<SECURITIES> 3,002,700
<RECEIVABLES> 1,730,800
<ALLOWANCES> 128,900
<INVENTORY> 2,295,400
<CURRENT-ASSETS> 52,126,700
<PP&E> 10,247,900
<DEPRECIATION> 4,182,100
<TOTAL-ASSETS> 58,192,500
<CURRENT-LIABILITIES> 12,360,500
<BONDS> 12,304,600
0
0
<COMMON> 218,900
<OTHER-SE> 33,308,500
<TOTAL-LIABILITY-AND-EQUITY> 58,192,500
<SALES> 2,962,600
<TOTAL-REVENUES> 3,826,500
<CGS> 873,500
<TOTAL-COSTS> 6,929,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 329,800
<INCOME-PRETAX> (3,433,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,433,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,433,200)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
