<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
Commission File Number: 0-27072
---------
HEMISPHERx BIOPHARMA, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-0845822
- ----------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1617 JFK Boulevard, Suite 660, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 988-0080
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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.
/X/ Yes / / No
15,587,842 shares of common stock were issued and outstanding as of
June 30, 1996.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JUNE 30,
1995 1996
---------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $11,291,167 $2,538,880
Prepaid expenses and other current assets 62,742 86,949
----------- -----------
Total current assets 11,353,909 2,625,829
Property and equipment, net 53,953 61,064
Patent and trademark rights, net 1,245,092 1,338,155
Security deposits 46,564 18,322
----------- -----------
Total assets $12,699,518 $4,043,370
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,095,637 $791,482
Accrued expenses 2,263,096 574,115
Notes payable 4,920,000 -
---------- ------------
Total current liabilities 8,278,733 1,365,597
Commitments and contingencies
Stockholders' equity:
Common stock 15,581 15,587
Additional paid-in capital 47,949,530 47,952,649
Accumulated deficit (43,544,326) (45,290,463)
------------ ------------
Total stockholders' equity 4,420,785 2,677,773
------------ ------------
Total liabilities and stockholders' equity $12,699,518 $4,043,370
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
For the three months ended
June 30,
-------------------------------
1995 1996
---- ----
<S> <C> <C>
Revenues:
Research and development $ 21,960 $ 15
Licensing fees 250,000 -
--------- ------------
Total revenues $271,960 $ 15
--------- ------------
Costs and expenses:
Research and development 275,390 395,805
General and administrative 576,809 721,753
--------- -------
Total cost and expenses 852,199 1,117,558
Interest income 75 43,165
Interest expense (205,464) -
--------- ------------
Net loss $(785,628) $(1,074,378)
========= ============
<CAPTION>
(PROFORMA)
<S> <C> <C>
Loss per share:
Weighted average shares outstanding 13,064,172 15,581,729
Net loss per share $ (0.06) $ (0.07)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
For the six months ended
June 30,
-------------------------------
1995 1996
---- ----
<S> <C> <C>
Revenues:
Research and development $ 33,260 $ 18,369
Licensing fees 1,000,000 -
----------- -------------
Total revenues $ 1,033,260 $ 18,369
----------- ------------
Costs and expenses:
Research and development 533,210 694,505
General and administrative 1,274,403 1,235,566
----------- ------------
Total cost and expenses 1,807,613 1,930,071
Debt conversion expense (149,384) -
Interest income 2,910 165,565
Interest expense (451,448) -
----------- ------------
Net loss $(1,372,275) $(1,746,137)
=========== ============
<CAPTION>
(PROFORMA)
<S> <C> <C>
Loss per share:
Weighted average shares outstanding 13,047,506 15,581,661
Net loss per share $ (0.11) $ (0.11)
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
For the six months ended
June 30,
--------------------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,372,275) $(1,746,137)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization of property and equipment 27,000 24,636
Amortization of patents rights 111,000 43,238
Imputed interest charges 41,360 -
Debt conversion expense 149,383 -
Write off of patent rights 81,838 -
Changes in assets and liabilities:
Prepaid expenses and other current assets (19,749) (24,207)
Accounts payable 73.033 (304,155)
Accrued expenses 601,987 (1,688,981)
Security deposits 1,459 28,242
Deferred revenue 1,000,000 -
---------- ------------
Net cash (used in) provided by operating activities 695,036 (3,667,364)
---------- -----------
Cash flows from investing activities:
Purchase of property and equipment (3,624) (31,747)
Additions to patent rights (130,674) (136,301)
------------ ------------
Net cash used in investing activities (134,298) (168,048)
---------- ------------
Cash flows from financing activities:
Proceeds from shareholder loans 35,000 -
Proceeds from notes payable 1,662,000 -
Payment of unsecured convertible note (112,000) -
Payments on stockholder notes (1,985,000) (4,920,000)
Common stock issued - 3,125
Deferred offering costs (187,737) -
------------ -----------
Net cash used in financing activities (587,737) (4,916,875)
---------- -----------
Net decrease in cash and cash equivalents (26,999) (8,752,287)
Cash and cash equivalents at beginning of period 61,005 11,291,167
---------- ----------
Cash and cash equivalents at end of period $ 34,006 $ 2,538,880
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Hemispherx BioPharma, Inc. (the "Company"), a Delaware corporation and all its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company's interim consolidated
financial statements are unaudited.
In the opinion of management, all adjustments necessary for a fair presentation
of such consolidated financial statements have been included. Such adjustments
consist of normal recurring items. Interim results are not necessarily
indicative of results for a full year.
The interim consolidated financial statements and notes thereto are presented
as permitted by the Securities and Exchange Commission (SEC), and do not
contain certain information which will be included in the Company's annual
consolidated financial statements and notes thereto.
These consolidated financial statements should be read in conjunction with the
Company's 1995 consolidated financial statements included in the Company's Form
10K statement filed on March 29, 1996 with the SEC and the Company's March 31,
1996 Form 10Q statement filed on May 14, 1996.
NOTE 2: INITIAL PUBLIC OFFERING
The Company completed an initial public offering (IPO) on November 2, 1995.
Net proceeds from the offering approximated $16,000,000 which includes the sale
of the 693,000 over-allotment shares.
NOTE 3: DEBT REPAYMENT
The Company resolved a long standing legal suit with a former note holder of
the Company. The litigation had been simultaneously pursued by the parties in
both the Federal Court of Eastern Pennsylvania as well as in the State Court of
Florida in Palm Beach County. The noteholder also filed a motion for a
preliminary injunction in the Pennsylvania court to enjoin the Company from
disbursing the proceeds of a public offering in the amount of $5.8 million,
which motion was granted in November, 1995. On February 15, 1996, the Company
reached an agreement to settle this matter. Terms and conditions of the
settlement include payment of $6,450,000 to the noteholder to cover the note
balance and legal expenses. The noteholder and related parties are to maintain
certain Warrants that were granted prior to the lawsuit. Other Warrants
granted to the
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noteholder in the note restructuring in 1994 were relinquished. The funds
under this settlement were paid on March 21, 1996. Mutual releases were
executed which completed the settlement of the litigation.
NOTE 4: PARTNERING AGREEMENTS
In April, 1996, SAB/Bioclones reported significant accomplishments in South
Africa in fulfillment of their licensing agreement. Pilot production runs of
raw materials for use in manufacturing Ampligen have been completed in
conformity to our specifications. SAB/Bioclones expect to have one kilo
completed and in inventory by June 30, 1996. They are negotiating with two
manufacturers to formulate the drug and to produce 200 ml infusion bottles (400
mg Ampligen) for use in clinical trials. Discussions also are underway with
clinical investigators to identify suitable participants for the double-blind
placebo controlled study of Ampligen in chronic active hepatitis B. This phase
is expected to be completed the end of 1996. Clinical investigators then will
be selected and patient enrolled for the studies. SAB/Bioclones has further
reported interest among Hepatologists to additionally evaluate Ampligen in the
treatment of hepatitis C.
In February, 1996, the Company entered into an agreement with Helix BioPharma,
a Canadian based pharmaceutical and biomedical company to jointly develop the
Company's lead product for certain chronic viral disorders and diseases of
immunological dysregulation. Helix BioPharma is the parent company of Rivex
Pharma, Inc. with which the Company has an agreement for marketing and
distribution services in Canada. Helix BioPharma, headquartered in Richmond,
British Columbia, is developing, licensing, marketing and distributing
biomedical and pharmaceutical products and services principally to the Canadian
markets.
NOTE 5: VENDOR AGREEMENTS
On February 20, 1996 the Company entered into an agreement with the lessor of
the corporate office whereby HEM agreed to pay $85,000 for all outstanding rent
and charges accrued through December 31, 1995 in the amount of $181,757. In
addition, the term of the lease was extended through April 30, 2000, reduced
the square footage under the lease and reduced the lease rate.
Rent expense charged to operations for the years ended December 31, 1993, 1994
and 1995 under the old lease amounted to approximately $223,000, $173,000 and
$289,000 respectively. The Company recognizes rent expense on a straight-line
basis over the lease term, and the difference between rent expense on a
straight-line basis and the base rental is deferred and included in accrued
expenses at December 31, 1994 and 1995. As of December 31, 1995 this accrual
for unrecognized deferred rent totaled $228,000. The new lease agreement
negated the need for this accrued liability. This settlement and amended lease
resulted in the Company recording $318,757 adjustment in earnings in the first
quarter 1996 financials.
7
<PAGE> 8
NOTE 6: SUBSEQUENT EVENT
On July 3, 1996 the Company issued and sold 6,000 shares of Series D
Convertible Preferred Stock ("Convertible") at $1,000 per share for an
aggregate total of $6,000,000. The proceeds, net of issuance costs, realized by
the Company were $5,454,875. In addition to the issuance of the Convertible
Preferred Stock, the Company issued to the buyer Warrants to purchase 100,000
shares of Common Stock.
The Convertible Preferred Stock is entitled to received dividends at the rate
of $50 per annum per share as declared by the Board of Directors of the
Corporation. The dividends are cumulative and payable quarterly commencing
October 1, 1996.
ITEM 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
Hemispherx BioPharma, Inc. and subsidiaries , formerly known as HEM
Pharmaceuticals Corp., is a pharmaceutical company using nucleic acid
technologies to develop therapeutic products for the treatment of viral
diseases and certain cancers. The Company's drug technology uses
specially-configured ribonucleic acid (RNA). The Company's double-stranded RNA
drug product, trademarked Ampligen, is in human clinical development for
various therapeutic indications. The efficacy and safety of Ampligen is being
developed clinically for three anti-viral indications: myalgic
encephalomyelitis, also known as chronic fatigue syndrome (ME/CFS) (Phase II
clinical trial completed and Phase II/III clinical trial authorized); human
immunodeficiency virus associated disorders (Phase II clinical trial
completed); and chronic hepatitis B virus infection (HBV) (Phase I/II clinical
trial in process). The Company also has clinical experience with Ampligen in
patients with certain cancers including renal cell carcinoma (kidney cancer)
and metastatic malignant melanoma.
The consolidated financial statements include the financial statements of
Hemispherx BioPharma, Inc. and its three wholly-owned subsidiaries, BioPro
Corp., BioAegean Corp. and Core BioTech Corp. which were incorporated in
September 1994 for the purpose of developing technology for ultimate sale into
certain non-pharmaceutical specialty consumer markets. All significant
intercompany balances and transactions have been eliminated in consolidation.
Since fiscal 1994, the Company has focused on negotiating and executing the
South African Breweries (SAB) Agreement, exploring potential partnerships to
pursue additional clinical trials with special emphasis on the HBV disease
indication, restructuring certain of its outstanding debt, conducting the 1994
Common Stock Financing and the Bridge Financing and preparing for its Initial
Public Offering (IPO). In the first half of fiscal 1996 the Company focused on
preparations for new clinical trials in HIV and the issuance of
8
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Series D Convertible Preferred Stock which was completed on July 3, 1996 (see
Note 6). In 1996 and beyond, the Company expects to add some additional
personnel to augment its general and administrative activities in support of
increased efforts for research and development, production and regulatory
activity.
The Company expects to continue its research and clinical efforts for the next
several years with some benefit of certain revenues from cost recovery
programs, notably in Canada and Belgium. Beginning in October, 1993, limited
revenues were initiated in Belgium from sales under the cost recovery provision
for conducting clinical tests in ME/CFS. Overall, the Company expects to
continue incurring losses over the next several years due to clinical costs
which are only partially offset by revenues and potential licensing fees. Such
losses may fluctuate from quarter to quarter as a result of differences in the
timing of significant expenses incurred and receipt of licensing fees and/or
revenues.
In June 1996, Douglas Hulse joined the Company as Chief Operating Officer
(COO). Mr. Hulse serves as Executive Director of The Sage Group, a healthcare
consulting firm specializing in pharmaceutical and biotechnology business
development and strategic planning. In his role as COO, Mr. Hulse will serve
as global coordinator interacting with various distributors and corporate
partners while insuring an adequate supply of drug for the Company's expected
commercial sales and expanded clinical programs.
In May 1996, the Canadian Health Protection Board authorized Helix BioPharma
Corp. (Helix) of British Columbia, Canada (see Note 4: Partnering Agreements)
to supply Ampligen under the Canadian Emergency Drug Release Program. This
authorization means that the drug will be available in Canada to sufferers of
HIV and Chronic Fatigue Syndrome. The Company is in the process of producing
Ampligen doses for shipment to Helix for distribution and sales in Canada.
RESULTS OF OPERATIONS
Six months ended June 30, 1996 versus the six months ended June 30, 1995
The Company reported a net loss of $1,746,137 for the six months ended June 30,
1996 versus a net loss of $1,372,275 for the same period in 1995. Several
factors contributed to the increased loss of $373,862.
Revenues were down $1,014,891 for the six months of 1996 as the results for the
six months ended June 30, 1995 include $1,000,000 of licensing fees recorded in
connection with SAB/Bioclones agreement. Research and development costs
increased $161,295 in the six months ended June 30, 1996 due primarily to
increased efforts on the Canadian and Belgium clinical programs. General and
administrative expenses of $1,235,566 in the first six months of 1996 reflect
the benefit of a one time gain in the amount of $318,757 resulting from the
forgiveness of certain lease obligations in connection with the
9
<PAGE> 10
restructuring of the Company's principal office lease. Excluding this one time
gain, general and administrative expenses in the first six months of 1996
exceeded related expenses in the first six months of 1995 by $279,920. This
increase can mostly be attributed to consulting fees, public relations,
printing expenses, and directors and officers insurance premiums. All of which
more or less are associated with the administration of a public company. The
increase is partially offset by decreases in rent expense and amortization of
patents.
Debt conversion costs of $149,384 and interest expense of $451,448 incurred in
1995 did not recur in 1996 due the fact that all the associated debt was
converted or repaid in 1995. Interest income increased by $162,655 due to the
earnings on the remaining IPO funds.
Three months ended June 30, 1996 versus three months ended June 30, 1995
The Company reported a net loss of $1,074,378 for the three months ended June
30, 1996 versus a net loss of $785,628 for the same period in 1995. Several
factors contributed to the increased loss of $288,750.
Revenues were down $271,945 for the three months ended June 30, 1996 as the
results for the three months ended June 30, 1995 include $250,000 of licensing
fees recorded in connection with SAB/Bioclones agreement. Research and
development costs increased $120,415 in the three months ended June 30, 1996
due primarily to increased efforts on the Canadian and Belgium clinical
programs. General and administrative expenses of $721,753 in the three months
ended June 30, 1996 exceeded related expenses in the three months ended June
30, 1995 by $144,944. This increase can mostly be attributed to consulting
fees, public relations, printing expenses, and directors and officers insurance
premiums. All of which more or less are associated with the administration of a
public company. The increase is partially offset by decreases in rent expense
and amortization of patents.
Interest expense of $205,464 incurred in 1995 did not recur in 1996 due the
fact that all the associated debt was converted or repaid in 1995. Interest
income increased by $43,090 due to the earnings on the remaining IPO funds.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 1996 was $2,538,880 compared to
$11,291,167 at December 31, 1995. This December 31, 1995 figure includes
$5,818,733 of restricted cash as ordered by the Court in connection with the
Cohn litigation. In February, 1996, the Company agreed to repay the Cohn note
and settle the Cohn litigation (see Note 3). In exchange for mutual releases
and other consideration, the Company paid Mr. Cohn $6,450,000 on March 21,
1996. This figure includes $4,920,000 in principal and $1,530,000 for legal and
other costs. The Company retired much of the outstanding
10
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vendor and supplier obligations from the proceeds from the SAB Agreement, the
Bridge Loans and revenue from sales under the cost recovery programs. In
addition, certain officers, directors and shareholders have entered into the
1995 Standby Financing Agreement pursuant to which they have agreed to provide
funding up to $5,500,000 to the Company in the event that existing and
additional financing is insufficient to cover the cash needs of the Company
through December 31, 1996. Moreover, because of the Company's long-term capital
requirements, it may seek to access the public equity market whenever
conditions are favorable, even if it does not have an immediate need for
additional capital at that time. Any additional funding may result in
significant dilution and could involve the issuance of securities with rights
which are senior to those of existing stockholders. The Company may also need
additional funding earlier than anticipated, and the Company's cash
requirements in general may vary materially from those now planned, for reasons
including, but not limited to, changes in the Company's research and
development programs, clinical trials, competitive and technological advances,
the regulatory process, and higher than anticipated expenses and lower than
anticipated revenues from certain of the Company's clinical trials as to which
cost recovery from participants has been approved.
On July 3, 1996 the Company issued and sold 6,000 of Series D Convertible
Preferred Stock. The net proceeds realized by the Company were $5,454,875. (See
note 6).
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
In July 1996, the Company unbundled it's public stock unit (consisting of one
share of Common Stock and one Warrant to purchase Common Stock). The Common
shares (HEMX), Warrants (HEMXW) as well as Units (HEMXU) are now separately
traded on NASDAQ.
On July 3, 1996, the Company completed a $6 million private placement with a
single institutional investor in the form of a newly issued Series D Preferred
Stock which is convertible into Common Stock. The proceeds from this private
placement are being used to expand drug inventory.
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ITEM 3: Defaults in Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8K
(a) Exhibits - See Exhibits 11 & 12
(b) Reports on Form 8K - None
12
<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.
HEMISPHERx BIOPHARMA, INC.
/s/ William A. Carter, M.D.
-----------------------------------
Date: August 10, 1996 William A. Carter, M.D.
Chief Executive Officer & President
/s/ Robert E. Peterson
-----------------------------------
Date: August 10, 1996 Robert E. Peterson
Chief Financial Officer
13
<PAGE> 1
EXHIBIT 11
HEMISPHERx BIOPHARMA, INC.
STATEMENTS REGARDING COMPUTATION OF
NET LOSS PER SHARE
For the three months ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
Three Months Ended
June 30,
(unaudited)
----------------------------------------
1995 1996
---- ----
NET LOSS PER SHARE (PROFORMA)
<S> <C> <C>
Net Loss: $ (785,628) $ (1,074,378)
======= =========
Shares:
Weighted average number of common shares
outstanding during the period 7,253,420 15,581,729
Incremental shares representing:
Options and warrants issued within one
year period prior to an initial public offering 3,858,538 -
Conversion of Preferred Stock to Common
Stock 1,952,214 -
--------- ----------
Weighted average number of shares used in
calculating net loss per share 13,064,172 15,581,729
========== ==========
Net loss per share $ (.06) $ (.07)
========== ==========
</TABLE>
14
<PAGE> 1
EXHIBIT 12
HEMISPHERx BIOPHARMA, INC.
STATEMENTS REGARDING COMPUTATION OF
NET LOSS PER SHARE
For the six months ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(unaudited)
-------------------------------------
1995 1996
---- ----
NET LOSS PER SHARE (PROFORMA)
<S> <C> <C>
Net Loss: $ (1,372,275) $ (1,746,137)
========= =========
Shares:
Weighted average number of common shares
outstanding during the period 7,236,754 15,581,661
Incremental shares representing:
Options and warrants issued within one
year period prior to an initial public offering 3,858,538 -
Conversion of Preferred Stock to Common
Stock 1,952,214 -
--------- --------------
Weighted average number of shares used in
calculating net loss per share 13,047,506 15,581,661
========== ==========
Net loss per share $ (0.11) $ (0.11)
=========== ===========
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,538,880
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,625,829
<PP&E> 631,656
<DEPRECIATION> 570,592
<TOTAL-ASSETS> 4,043,370
<CURRENT-LIABILITIES> 1,365,597
<BONDS> 0
0
0
<COMMON> 15,587
<OTHER-SE> 2,662,186
<TOTAL-LIABILITY-AND-EQUITY> 4,043,370
<SALES> 0
<TOTAL-REVENUES> 183,934
<CGS> 0
<TOTAL-COSTS> 1,930,071
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,746,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,746,137)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
