<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 March 31, 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
15,581,592 shares of common stock were issued and outstanding as of March 31,
1996.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,291,167 $3,620,343
Prepaid expenses and other current assets 62,742 79,485
----------- -----------
Total current assets 11,353,909 3,699,828
Property and equipment, net 53,953 73,616
Patent and trademark rights, net 1,245,092 1,288,221
Security deposits 46,564 17,761
----------- -----------
Total assets $12,699,518 $5,079,426
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,095,637 $ 847,650
Accrued expenses 2,263,096 482,750
Notes payable 4,920,000 -
------------ ------------
Total current liabilities 8,278,733 1,330,400
Commitments and contingencies
Stockholders' equity:
Common stock 15,581 15,581
Additional paid-in capital 47,949,530 47,949,530
Accumulated deficit (43,544,326) (44,216,085)
------------ ------------
Total stockholders' equity 4,420,785 3,749,026
------------ ------------
Total liabilities and stockholders' equity $12,699,518 $ 5,079,426
============ ============
</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
March 31,
--------------------------------
1995 1996
---- ----
<S> <C> <C>
Revenues:
Research and development $ 11,300 $ 18,354
Licensing fees 750,000 -
----------- -----------
Total revenues $ 761,300 $ 18,354
----------- -----------
Costs and expenses:
Research and development 257,820 298,700
General and administrative 697,594 513,813
----------- -----------
Total cost and expenses 955,414 812,513
Debt conversion expense (149,384) -
Interest income 2,835 122,400
Interest expense (245,984)
----------- -----------
Net loss $ (586,647) $ (671,759)
=========== ===========
(PROFORMA)
Loss per share:
Weighted average shares outstanding 13,014,174 15,581,592
Net loss per share $ (.05) $ (.04)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
For the three months ended
March 31,
---------------------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (586,647) $ (671,759)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities: - -
Depreciation and amortization of property and equipment 13,500 11,607
Amortization of patents rights 55,500 21,211
Imputed interest charges 19,315 -
Debt conversion expense 149,383 -
Write off of patent rights 34,781 -
Changes in assets and liabilities:
Prepaid expenses and other current assets (2,219) (16,743)
Accounts payable 102,991 (247,988)
Accrued expenses 415,481 (1,780,346)
Security deposits 1,168 28,803
Deferred revenue 750,000 -
------------ -----------
Net cash (used in) provided by operating activities 953,253 (2,655,215)
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment (855) (31,270)
Additions to patent rights (93,021) (64,339)
------------ -----------
Net cash used in investing activities (93,876) (95,609)
------------ -----------
Cash flows from financing activities:
Proceeds from shareholder loans 35,000 -
Proceeds from notes payable 782,000 -
Payment of unsecured convertible note - (4,920,000)
Payments on stockholder notes (1,735,000) -
------------ -----------
Net cash used in financing activities (918,000) (4,920,000)
------------ -----------
Net decrease in cash and cash equivalents (58,623) (7,670,824)
Cash and cash equivalents at beginning of period 61,005 11,291,167
------------ -----------
Cash and cash equivalents at end of period $ 2,382 $ 3,620,343
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
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.
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 noteholder in the note restructuring in 1994 were relinquished.
The funds under this
5
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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. For a payment of
$85,000 all outstanding rent and charges accrued through December 31, 1995 in
the amount of $181,757 were forgiven by the landlord. 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.
6
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ITEM 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
Hemispherx BioPharma, Inc. and subsidiaries (the "Company"), 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); 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.
During fiscal 1994 and 1995, 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 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.
7
<PAGE> 8
RESULTS OF OPERATIONS
Three months ended March 31, 1996 versus the three months ended March 31, 1995
The Company reported a net loss of $671,759 for the quarter ended March 31,
1996 versus a net loss of $586,647 for the same period in 1995. Several
factors contributed to the increase in net loss of $85,112.
Revenues were down $742,946 for the quarter ended March 31, 1996 as the results
for the quarter ended March 31, 1995 include $750,000 of licensing fees
recorded in connection with the SAB/Bioclones agreement. Research and
development costs increased by $40,880 in the quarter ended March 31, 1996 due
primarily to increased efforts on the Canadian and Belgium clinical programs.
General and administrative expenses of $513,813 in the first quarter 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
restructuring of the Company's principal office lease. Excluding this one time
gain, general and administrative expenses in the first quarter of 1996 exceeded
related expenses in the first quarter of 1995 by $134,976. This increase can
be attributed to consulting fees, public relations, printing expenses and
director and officer insurance premiums. All of which more or less are
associated with the administration of a public company.
Debt conversion costs of $149,384 and interest expense of $245,984 incurred in
the first quarter of 1995 did not recur in 1996 due the fact that all the
associated debt was converted or repaid in 1995. Interest income increased by
$119,565 in the first quarter of 1996 due to the earnings on the remaining IPO
proceeds.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1996 was $3,620,543 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 2). 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 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
8
<PAGE> 9
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.
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
The Company was a defendant in a lawsuit instituted in 1991 by participants in
a double-blind placebo-controlled clinical trial of Ampligen therapy for
ME/CFS. The plaintiffs alleged that the Company or its alleged agents promised
them that they would receive Ampligen after the placebo-controlled study at no
cost for periods ranging from "until marketable" to "for life." Plaintiffs
sought compensatory and punitive damages. The court granted the Company's
motions for summary judgment upon all claims alleged by the plaintiffs in this
case. The plaintiffs have appealed from these orders before the United States
Court of Appeals for the Ninth Circuit. In January 1996, the Court of Appeals
denied their appeal and sustained the Company's position. On the basis of the
Court of Appeals favorable decision, the Company believes the lawsuit is over
with no material effect on the Company.
In February 1991, a university advised the Company of its position that
employees of the university were the inventors of an issued U.S. patent
regarding the use of Ampligen in combination with various other agents
(including AZT) for the treatment of HIV infection. As issued, this patent
names the Company's Chief Executive Officer as sole inventor and the Company as
sole assignee. The university has demanded that the patent be reissued naming
the university's employees as inventors and the university as assignee. The
Company has refused to take such action. No formal claim has been filed by the
university. If such claim were filed and if such claim were found to have
merit, the loss of the patent at issue would not have a materially adverse
effect on the Company's long-range business since the university would only be
able to limit and/or prevent the Company's use of Ampligen in combinations with
AZT in the treatment of HIV.
In November 1994, the Company filed suit against Temple University
("Temple") in the Superior Court of the State of Delaware ("Superior
Court") seeking a declaratory judgment that the Temple Agreement remains in
full force and effect and seeking monetary damages in excess of $10 million for
Temple's alleged breach of its obligations of good faith and fair dealing and
certain terms of the Temple Agreement. Temple has filed a motion to dismiss
this lawsuit upon the grounds of lack of personal jurisdiction. In
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January 1995, Temple filed separate litigation against the Company in the Court
of Common Pleas of Philadelphia County seeking declaratory judgment that the
Temple Agreement has been lawfully terminated as of July 1, 1994, together with
an award of costs including attorney fees, in bringing the action. The Court of
Common Pleas has stayed further proceedings in that litigation pending the
outcome of the Company's Superior Court case. If the Company were to lose its
claim, the loss of the licensing agreement could have a material adverse effect
on the Company's future business as Temple or its new licensees, if any, could
become competitors of the Company.
In March 1995, the Company instituted a declaratory judgment action
against the February 1992 noteholder of a $5 million convertible note and a
second defendant in the United State District Court for the Eastern District of
Pennsylvania ("the Pennsylvania action") to declare as void, set aside, and
cancel the February 1992 convertible note between the Company and the
noteholder ("the Note"). In addition, the noteholder instituted suit against
the Company on the Note in the Circuit Court of the 15th Judicial District in
and for Palm Beach County, Florida, seeking judgment on the note, plus
attorneys fees, costs and expenses; in August 1995, this action was stayed by
the Florida Court pending the outcome of the Pennsylvania action. 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 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.
The Company is subject to claims and legal actions that arise in the
ordinary course of their business. Management believes that the ultimate
liability, if any, with respect to these claims and legal actions will not have
a material effect on the financial position or results of operations of the
Company.
ITEM 2: Changes in Securities
None
ITEM 3: Defaults in Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
None
10
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ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8K
(a) Exhibits - See Exhibit 11
(b) Reports on Form 8K - None
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEMISPHERx BIOPHARMA, INC.
/s/ WILLIAM A. CARTER
-----------------------------------
Date: May 3, 1996 William A. Carter, M.D.
Chief Executive Officer & President
/s/ ROBERT E. PETERSON
-----------------------------------
Date: May 3, 1996 Robert E. Peterson
Chief Financial Officer
12
<PAGE> 1
EXHIBIT 11
HEMISPHERx BIOPHARMA, INC.
STATEMENTS REGARDING COMPUTATION OF PROFORMA NET LOSS PER SHARE
For the three months ended March 31, 1995 and 1996
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(unaudited)
--------------------------------------
1995 1996
---- ----
<S> <C> <C>
NET LOSS PER SHARE (PROFORMA)
Net Loss: $ (586,647) $ (671,759)
======= =======
Shares:
Weighted average number of common shares
outstanding during the period 7,219,710 15,581,592
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 1,935,926 -
---------- ----------
Weighted average number of shares used in
calculating proforma net loss per share 13,014,174 15,581,592
========== ==========
Net loss per share $ (.05) $ (.04)
=== ===
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,291,167
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,353,909
<PP&E> 599,909
<DEPRECIATION> 545,956
<TOTAL-ASSETS> 12,699,518
<CURRENT-LIABILITIES> 8,278,733
<BONDS> 0
0
0
<COMMON> 15,581
<OTHER-SE> 4,405,204
<TOTAL-LIABILITY-AND-EQUITY> 12,699,518
<SALES> 0
<TOTAL-REVENUES> 3,061,797
<CGS> 0
<TOTAL-COSTS> 3,909,105
<OTHER-EXPENSES> 149,384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 843,148
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,839,840)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,839,840)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,620,343
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,699,828
<PP&E> 631,179
<DEPRECIATION> 557,563
<TOTAL-ASSETS> 5,079,426
<CURRENT-LIABILITIES> 1,330,400
<BONDS> 0
0
0
<COMMON> 15,581
<OTHER-SE> 3,733,445
<TOTAL-LIABILITY-AND-EQUITY> 5,079,426
<SALES> 0
<TOTAL-REVENUES> 140,754
<CGS> 0
<TOTAL-COSTS> 812,513
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (671,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (671,759)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
