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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, 1997
Commission File Number: 0-27072
HEMISPHERx BIOPHARMA, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-0845822
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1617 JFK Boulevard, Suite 660, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
(215) 988-0080
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(Registrant's telephone number, including area code)
Not Applicable
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(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
16,360,205 shares of common stock issued and outstanding as of March 31, 1997.
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PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, March.31,
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,279,429 $4,016,348
Prepaid expenses and other current assets 105,341 141,661
----------- ----------
Total current assets 5,384,770 4,158,009
Property and equipment, net 83,475 76,605
Patent and trademark rights, net 1,502,816 1,495,994
Security deposits 28,323 18,323
----------- ----------
Total assets $ 6,999,384 $5,748,931
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 598,078 $ 600,030
Accrued expenses 548,312 419,619
----------- ----------
Total current liabilities 1,146,390 1,019,649
Commitments and contingencies
Stockholders' equity:
Preferred stock 50 50
Common stock 16,160 16,360
Additional paid-in capital 54,080,171 55,329,991
Accumulated deficit (48,243,387) (50,617,119)
----------- ----------
Total stockholders' equity 5,852,994 4,729,282
----------- ----------
Total liabilities and stockholders' equity $ 6,999,384 $ 5,748,931
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION> (Unaudited)
For the three months ended
March 31,
--------------------------
1996 1997
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<S> <C> <C>
Revenues:
Research and development $ 18,354 $ 30,207
---------- ----------
Total revenues 18,354 30,207
---------- ----------
Costs and expenses:
Research and development 298,700 656,255
General and administrative 513,813 1,751,380
---------- ----------
Total cost and expenses 812,513 2,407,635
Interest income 122,400 66,194
---------- ----------
Net loss $ (671,759) $(2,311,234)
========== ==========
Weighted average shares outstanding 15,581,592 16,215,761
Net loss per share $ (0.04) $ (0.14)
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> (Unaudited)
For the three months ended
March 31,
-------------------------
1996 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (671,759) $(2,311,234)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of property and equipment 11,607 6,870
Amortization of patents rights 21,211 29,949
Write-off of patent rights - 11,346
Preferred stock conversion expense - 1,227,864
Changes in assets and liabilities:
Prepaid expenses and other current assets (16,743) (36,321)
Accounts payable (247,988) 1,952
Accrued expenses (1,780,346) (19,417)
Security deposits 28,803 10,000
--------- ---------
Net cash used in operating activities (2,655,215) (1,078,991)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (31,270) -
Additions to patent rights (64,339) (34,472)
--------- ---------
Net cash used in investing activities (95,609) (34,472)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of preferred stock - 4,850,382
Preferred stock redeemed - (5,000,000)
Payments on stockholder notes (4,920,000) -
--------- ---------
Net cash used in financing activities (4,920,000) (149,618)
--------- ---------
Net decrease in cash and cash equivalents (7,670,824) (1,263,081)
Cash and cash equivalents at beginning of period 11,291,167 5,279,429
--------- ---------
Cash and cash equivalents at end of period $3,620,343 $4,016,348
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED 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 transac-
tions 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 1996 consolidated financial statements included in the Company's Form
10K statement filed with the SEC on March 26, 1997.
NOTE 2: SERIES D CONVERTIBLE PREFERRED STOCK
On July 3, 1996 the Company issued and sold 6,000 shares of Series D
Convertible Preferred Stock ("the Preferred Stock") at $1,000 per share for
an aggregate total of $6,000,000. The proceeds, net of issuance costs,
realized by the Company were $5,395,885. In addition to the issuance of the
Preferred Stock, the Company issuedto the buyer Warrants ("the Warrants") to
purchase 100,000 shares of Common Stock at the strike price of $4 per share.
The Preferred Stock earned dividends at the rate of $50 per annum per share.
The dividends were cumulative and payable quarterly commencing October 1, 1996
as declared by the Board of Directors of the Corporation.
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In October,1996, the Preferred Shareholder converted 1,381 shares of Series D
Convertible Preferred Stock into 576,527 shares of common stock.
On September 16, 1996 the Company's registration statement registering the
common stock underlying the Preferred Stock and the Warrants was declared
effective by the SEC.
On March 7, 1997, the Company retired all the outstanding Series D Convertible
Preferred Stock.(See note 3).
NOTE 3: SERIES E CONVERTIBLE PREFERRED STOCK
On March 7, 1997, the Company used the services of an investment banking firm
to privately place $5 million of Series E Convertible Preferred Stock. The
proceeds from placement were used to retire the $5 million balance of Series
D Convertible Stock issued on July 3, 1996. In conjunction with this
transaction, the Company issued 200,000 shares of common stock with a
guaranteed value of $6.00 per share within the subsequent six months of
issuance. Consequently, the Company incurred a $1.2 million charge which
had no effect on the total stockholders' equity as it was offset by an
increase in additional paid-in capital.
NOTE 4: STOCK COMPENSATION:
The Company recorded stock/warrant compensation expense of $27,864 during the
quarter ended March 31, 1997 on the basis of granting 150,000 warrants to
purchase Common stock to non-employees of the Company. These grants were in
exchange for services to be provided by certain institutions.
NOTE 5: NEW ACCOUNTING PRONOUNCEMENTS:
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. This Statement
simplifies the standards for computing earnings per share previously found
in APB Opinion NO. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with
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complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application in not permitted. This
Statement requires restatement of all prior-period EPS data presented. The
adoption of this Statement will not have any impact on the Company's EPS
disclosure, as the Company's stock options and warrants are anti-dilutive
and will be excluded from the denominator of earnings per share; thus,
earnings per common share is equal to basic earnings per share as computed
under SFAS No. 128.
ITEM 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
The Company was incorporated in Maryland in 1966 under the name HEM
Research, Inc. and originally served as a supplier of research support
products. The Company's business was redirected in the early 1980's to the
development of nucleic acid pharmaceutical technology and the
commercialization of RNA drugs. The Company was reincorporated in Delaware
and changed its name to HEM Pharmaceuticals Corp. in 1991 and to Hemispherx
BioPharma, Inc. in June 1995. The Company has three subsidiaries--BioPro
Corp., BioAegean Corp. and Core BioTechCorp., all of which were incorporated
in Delaware in 1994. The Company has reported net profit only from 1985
through 1987. Since 1987, the Company has incurred substantial operating
losses. Prior to completing an Initial Public Offering (IPO) in November
1995, the Company financed operations primarily through the private placement
of equity and debt securities, equipment lease financing, interest income
and revenues from licensing and royalty agreements.
The IPO completed in November 1995 produced net proceeds of approximately
$16,000,000. These funds plus the conversion of $3,447,000 in Redeemable
Preferred Stock to equity improved stockholders equity by some $19,000,000.
The cash proceeds from the IPO was used to retire debt and other liabilities
and establish a fund for future operations.
The development of the Company's products has required and will continue
to require the commitment of substantial resources to conduct the
time-consuming research, preclinical development, and clinical trials
necessary to bring pharmaceutical products to market and establish commercial
production
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and marketing capabilities. Accordingly, the Company will need to raise
additional funds through additional equity or debt financing, collaborative
arrangements with corporate partners, off balance sheet financing or from
other sources in order to complete the necessary clinical trials and the
regulatory approval processes and begin commercializing its products.
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 focused on negotiating and
executing the 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 completing its IPO.
In 1996, the Company reviewed and restructured the Ampligen manufacturing
process. Second sources were established to procure raw materials,
lyophilization services and release testing. In the areas of research and
clinical efforts, the Company established with the FDA a roadmap of research
and clinical studies to be completed . These studies include animal toxicity
and clinical studies in HIV and CFS. One HIV clinical study was approved by
the FDA and started in early 1997. The animal toxicity studies requested by
the FDA began in 1996. In addition, the Company shipped the initial inventory
of Ampligen to Canada to use in its cost recovery program there.
The Company expects to continue its research and clinical efforts for
the next several years with benefit occurring as a result of certain revenues
from cost recovery programs, notably in Canada, Belgium, and the U.S. Beginning
in October, 1993, limited revenues were initiated in Belgium from sales under
the cost recovery provision for conducting clinical tests in ME/CFS. However,
the Company may continue to incur losses over the next several years due to
clinical costs which are 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 from cost recovery based sales in Belgium,
Canada and the United States. The Company is also pursuing similar programs
in other countries.
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Recent Developments
On May 1, 1997, the Company received permission from the U.S. Food and
Drug Administration (FDA) to recover costs from Chronic Fatigue Syndrome (CFS)
patients in the Company's AMP-511 open-label treatment protocol. This treatment
protocol is expected to begin immediately. At the same time, the Company agreed
to conduct a controlled CFS clinical trial (AMP-516) starting no later than the
fourth quarter of 1997.
In March, 1997, The Company sold 5,000 shares of Series E Convertible
Preferred Stock at $1,000 per share in a private offering pursuant to
Regulation D of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder. The proceeds of this placement were used to retire
the convertible preferred stock (Series D), which was placed under Regulation
D filing with the SEC during 1996. As a result of this transaction in 1997,
the Company incurred a $1.2 million charge which had no effect on total
stockholders' equity as it was offset by an increase in additional paid-in
capital.
In January 1997, the Company began a Phase II clinical trial in Texas
treating HIV infected patients with Ampligen. The trial, approved by the FDA,
will study the effect of Ampligen on viral load, or burden, in HIV patients
with CD4 levels over 400 cells/mm who are not being treated with any other
HIV medications. The principal investigator in the trial, Dr. Patricia
Salvato, specializes in the treatment of individuals with HIV infection.
Dr. Salvato is a Clinical Associate Professor at the University of Texas
Health Science Center, and has participated in prior clinical trials of
Ampligen for various chronic viral diseases including HIV and CFS.
In December, 1996 the Company and Temple University settled their legal
disputes regarding the license agreement between the parties covering the
Oragen drugs. The parties signed the documents required to consummate their
settlement, which includes a worldwide license for the commercial sale of all
Oragen products based on patents and related technology held by Temple. This
agreement was originally executed in 1988. In 1994, Temple terminated the
agreement, which caused the company to file legal action to re-instate the
1988 agreement.
In November, 1996, the Company announced that it will significantly expand
the enrollment of patients in Ampligen treatment programs in Belgium. This
expansion was at the request of the Belgium Investigator.
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On October 15, 1996, results of a Belgium clinical study were presented
at the annual scientific meeting of the American Association for Chronic
Fatigue Syndrome (AACFS) evidencing that Ampligen produced significant
physical and cognitive improvements among patients suffering from Chronic
Fatigue Syndrome. The study was presented by Kenny De Meirleir, M.D., Ph.D.
from the University of Brussels, and by David S. Strayer, M.D., Professor of
Medicine at Allegheny University, PA, and Medical Director for the Company.
RESULTS OF OPERATIONS
Three months ended March 31, 1997 versus the three months ended March
31, 1996
The Company reported a net loss of $2,311,234 for the three months ended
March 31, 1997 versus a net loss of $671,759 for the same period in 1996.
Several factors contributed to the increased loss of $1,639,475.
Revenues were up for the three months of 1997 due to increased cost
recovery from the Belgium clinical trials.
Research and development costs increased $357,555 in the three months
ended March 31, 1997 due primarily to increased efforts in toxicity studies and
on the Canadian and Belgium clinical programs.
General and administrative expenses in the first three months of 1996
included 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 three months of 1997
exceeded related expenses in the first three months of 1996 by $918,810.
This increase is basically attributable to stock compensation and preferred
stock conversion costs of $1,227,863. (See notes 3 & 4). Factoring out the
stock compensation and preferred stock conversion costs, general and
administrative expenses actually decreased by $309,053 in the three months
ended March 31, 1997. This decrease is primarily due to lower legal and
consulting fees.
Interest income decreased in the three months ended March 31, 1997
compared to 1996 due to lower cash and cash equivalents available for short
term investments.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 1997 was $4,016,348 compared to
$5,279,429 at December 31, 1996. 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
for 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 $5,395,885. On
March 7, 1997, the company retired Series D Convertible Preferred Stock.
(see note 2 and 3).
On March 7, 1997, the Company used the services of an investment banking
firm to privately place $5 million of Series E Convertible Preferred Stock. The
proceeds from placement were used to retire the $5 million balance of Series D
Convertible Stock issued on July 3, 1996. (see note 2 and 3). <PAGE>
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PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
In July 1996, the Company separated it's public stock unit (consisting
of one share of Common Stock and one Warrant to purchase Common Stock). The
Common shares (HEMX), and Warrants (HEMXW) are now separately traded on NASDAQ.
The units were delisted in July, 1996.
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.
On March 7, 1997, the Company used the services of an investment banking
firm to privately place $5 million of Series E Convertible Preferred Stock. The
proceeds from placement were used to retire the $5 million balance of Series D
Convertible Stock issued on July 3, 1996.
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
Reports on Form 8K - None
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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 12, 1997 William A. Carter,M.
Chief Executive Officer & President
/s/ Robert Peterson
--------------------------
Date: May 12, 1997 Robert E. Peterson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,016,348
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,158,009
<PP&E> 686,389
<DEPRECIATION> (609,784)
<TOTAL-ASSETS> 5,748,931
<CURRENT-LIABILITIES> 1,019,649
<BONDS> 0
0
50
<COMMON> 16,360
<OTHER-SE> 4,712,872
<TOTAL-LIABILITY-AND-EQUITY> 4,729,282
<SALES> 0
<TOTAL-REVENUES> 96,401
<CGS> 0
<TOTAL-COSTS> 2,407,635
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,311,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,311,234)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
