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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 June 30, 1998
Commission File Number: 0-27072
HEMISPHERx BIOPHARMA, INC.
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(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
21,708,751 shares of common stock issued and outstanding as of
June 30, 1998.
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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, June 30,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,965,714 $ 6,556,764
Short Term Investments 1,001,410 1,000,470
Accounts Receivable 32,408 62,300
Prepaid expenses and other current assets 66,618 59,472
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Total current assets 10,066,150 7,679,006
Property and equipment, net 70,637 99,221
Patent and trademark rights, net 1,387,523 1,332,743
Security deposits 18,323 19,453
----------- ----------
Total assets $11,542,633 $ 9,130,423
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 465,166 $ 792,462
Accrued expenses 332,045 254,433
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Total current liabilities 797,211 1,046,895
Commitments and contingencies
Stockholders' equity:
Preferred stock 37 24
Common stock 21,042 21,708
Additional paid-in capital 65,255,571 65,737,264
Deferred compensation (137,132) (221,268)
Accumulated other comprehensive (loss) (2,183) (3,123)
Accumulated deficit (54,391,913) (57,451,077)
----------- ----------
Total stockholders' equity 10,745,422 8,083,528
----------- ----------
Total liabilities and stockholders' equity $11,542,633 $ 9,130,423
=========== ==========
</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
June 30
--------------------------
<S> <C> <C>
1997 1998
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Revenues:
Cost recovery - clinical treatment programs $ 31,618 $ 95,939
---------- ----------
Total revenues 31,618 95,939
---------- ----------
Costs and expenses:
Research and development 670,678 1,087,916
General and administrative 502,887 704,501
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Total cost and expenses 1,173,565 1,792,417
Interest income 44,524 117,903
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Net loss $(1,097,423) $(1,578,575)
========== ==========
Basic loss per share $ (0.07) $ (0.07)
========== ==========
Weighted average shares outstanding 16,416,637 21,374,685
========== ==========
Diluted loss per share $ (0.07) $ (0.07)
========== ==========
Weighted average common and dilutive
equivalent shares outstanding 16,416,637 21,374,685
========== ==========
</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 Six months ended
June 30
--------------------------
<S> <C> <C>
1997 1998
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Revenues:
Cost recovery - clinical treatment programs $ 61,825 $ 181,850
---------- ----------
Total revenues 61,825 181,850
---------- ----------
Costs and expenses:
Research and development 1,326,933 2,007,524
General and administrative 1,026,403 1,489,160
Preferred stock conversion expense 1,227,864 -
---------- ----------
Total cost and expenses 3,581,200 3,496,684
Interest income 110,718 255,670
---------- ----------
Net loss $(3,408,657) $(3,059,164)
========== ==========
Basic loss per share $ (0.21) $ (0.14)
========== ==========
Weighted average shares outstanding 16,315,246 21,216,076
========== ==========
Diluted loss per share $ (0.21) $ (0.14)
========== ==========
Weighted average common and dilutive
equivalent shares outstanding 16,315,246 21,216,076
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY(DEFICIT)
For the six months ended June 30, 1998
<TABLE>
<CAPTION>
Preferred Common Preferred C/S .001 Additional Deferred Accumulated Accumulated Total
stock stock stock Par value paid-in Compensation other deficit stockholders,
shares shares capital comprehensive equity
------------ ------------ --------- --------- ------------ ---------- loss ---------- (deficit)
---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance 12/31/97 3,650 21,042,606 $37 $21,042 $65,255,571 $(137,132) $(2,183) $(54,391,913) $10,745,422
Common stock issued 16,145 16 56,492 56,508
Preferred stock
converted (1,300) 650,000 (13) 650 (637) -
Unrealized loss (940) (940)
Repayment of lock up (79,587) (79,587)
Stock compensation 505,425 (84,136) 421,289
Net loss (3,059,164) (3,059,164)
-------- ---------- ------ ------- ----------- ---------- -------- ------------- ----------
Balance 6/30/98 2,350 21,708,751 $24 $21,708 $65,737,264 $(221,268) $(3,123) $(57,451,077) $8,083,528
======== ========== ====== ======= =========== ========== ======== ============= ==========
</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 Six months ended
June 30
-------------------------
1997 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,408,657) $(3,059,164)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of property and equipment 13,740 15,885
Amortization of patents rights 59,833 111,139
Write-off of patent rights 46,451 55,551
Preferred stock conversion expense 1,227,864 -
Stock option compensation expense - 421,289
Changes in assets and liabilities:
Accounts receivable ( 30,750) (29,486)
Prepaid expenses and other current assets ( 1,004) 6,740
Accounts payable ( 31,583) 327,296
Accrued expenses ( 79,910) 24,287
Security deposits 10,000 (1,130)
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Net cash used in operating activities (2,194,016) (2,127,593)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (5,661) (44,469)
Additions to patent rights ( 89,772) (111,910)
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Net cash used in investing activities ( 95,433) (156,379)
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Cash flows from financing activities:
Proceeds from issuance of preferred stock 4,834,923 -
Preferred stock redeemed (5,000,000) -
Common stock issued 1,282 56,508
Stock issuance cost - (181,486)
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Net cash used in financing activities (163,795) (124,978)
--------- ---------
Net decrease in cash and cash equivalents (2,453,244) (2,408,950)
Cash and cash equivalents at beginning of period 5,279,429 8,965,714
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Cash and cash equivalents at end of period $2,826,185 $6,556,764
========= =========
</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
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 1997 consolidated financial statements included in the
Company's Form 10K statement filed with the SEC on March 27, 1998.
NOTE 2: 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 value
of $6.00 per share in exchange for a lock-up in the shares through November
30, 1997. 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. On January 15, 1998, the Company
paid GFL Advantage Fund ("GFL") $181,486 and issued 100,000 registered shares as
settlement of the amount due GFL for the difference between the actual
selling price and the $6.00 value.
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NOTE 3: STOCK COMPENSATION:
The Company recorded stock/warrant compensation expense of $204,481 during
the quarter ended June 30, 1998 for warrants granted to purchase Common
stock to non-employees of the Company. This expense had no effect on
shareholder equity as it was offset by an increase in additional paid-in
capital.
In the first six months of 1998, the Company granted 1,266,000 stock
warrants to certain employees in recognition of services performed and
services to be performed. These warrants are exercisable at prices ranging
from $3 - $6 per share. The Company applies APB Opinion No. 25 in accounting
for stock- based compensation of its employees and, accordingly,no compensation
expense has been recognized for stock purchase rights issued to employees in the
financial statements.
NOTE 4: NEW ACCOUNTING PRONOUNCEMENTS:
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share", which was effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods. 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 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 requires restatement of all prior-period EPS
data presented. The adoption of this Statement by the Company in 1997 did
not have any impact on the Company's EPS disclosure, as the Company's stock
options and warrants are anti-dilutive and are excluded from the
denominator of loss per share; thus, loss per common share is equal to basic
loss per share as computed under SFAS No. 128.
In March 1998, The Accounting Standards Executive Committee (ACSEC) issued
Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998.
In April 1998, the Accounting Standards Executive Committee (ACSEC) issued
Statement of Position (SOP) 98-5, "Reporting as the costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of
start-up
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costs and organization costs. The SOP requires costs related to start-up
activities and organization costs be expensed as incurred. The statement
is effective for financial statements for fiscal year beginning after
December 15, 1998.
The Company plans to adopt the SOP's in connection with the preparations
of the December 31, 1999 consolidated financial statements as permitted by
SOP 98-1 and 98-5. The adoption of these standards will not have a material
impact on consolidated results, financial conditions, or long-term
liquidity.
NOTE 5: COMPREHENSIVE INCOME:
In January, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("Statement 130"),
Statement
130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no
impact on the Company's net loss or stockholders' equity. Comprehensive
income is defined as the change in equity of a business enterprise during
a period from transactions and other events and circumstances from nonowner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The term
"other comprehensive income" refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but excluded from net income.
The components of comprehensive (loss):
For the three months For the six months
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
--------- -------- -------- ---------
Net Income (loss) $(1,097,423) $(1,578,575) $(3,408,657) $(3,059,164)
Unrealized gain
(loss) on short term
investments (940) (940)
---------- ---------- ---------- ----------
Total comprehensive $(1,097,423) $(1,579,515) $(3,408,657) $(3,060,104)
========== ========== ========== ==========
The components of accumulated other comprehensive income are as follows:
December 31, 1997 June 30, 1998
----------------- -------------
Unrealized gain in
marketable
securities $ 2,183 $ 3,123
-------- --------
Other comprehensive
income $ 2,183 $ 3,123
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ITEM 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
Hemispherx Biopharma, Inc. (the "Company") has developed a large body of
knowledge in the development and testing of therapeutic products based on
nucleic acid technologies. Ampligen, its lead compound, a type of double-
stranded RNA, is in advanced human clinical development for various therapeutic
indications. It has been clinically evaluated as an investigational drug in over
350 patients for different therapeutic indications. The clinical profile that
is emerging from these studies is that the drug has broad-spectrum antiviral and
immune modulating activity and is generally well tolerated. The Company is
currently conducting Phase III human clinical trials for the
therapeutic treatment of Myalgic Encephalomyelitis also known as Chronic
Fatigue Syndrome (ME/CFS). Ampligen is also under investigation for the
treatment of HIV infection. Other disease indications, including hepatitis B
and certain cancers are targeted for further investigation. Clinical trials
conducted in the early 1990's indicate that Ampligen may have potential in the
treatment of metastatic renal cell cancer and malignant melanoma. The Company
plans to explore the possibility of partnerships for the further development
in the treatment of these diseases. The Company expects to continue its research
and clinical efforts for the next several years with significant benefit
accruing as a result of certain revenues expected from various cost recovery
treatment programs, notably in Canada, Belgium and the United States. However,
the Company may continue to incur losses over the next several years due to
clinical costs incurred in the continued development of Ampligen for commercial
application. Possible 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 cost recovery treatment revenues in
Belgium, Canada and the United States. The Company is also pursuing similar
programs in other countries, especially within the European Union where
resources have been substantially increased with respect to pursuing regulatory
approvals.
As part of its research and development activities, the Company has entered
into various collaborative and sponsored research agreements with researchers,
universities and government agencies. The Company believes that these
agreements provide the Company with access to physicians and scientists with
expertise in the fields of clinical medicine, virology, molecular biology,
biochemistry, immunology and cellular biology.
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The Company's policy is to file or license patent applications on a worldwide
basis to protect technology, inventories and improvements that are considered
important to the development of its business. Over the years, Hemispherx
has secured a significant patent estate consisting of 15 issued U.S. patents and
over 250 derivative international filings; Nine additional U.S. patent filings
are pending along with their international counterparts. The Company has also
in-licensed, on an exclusive base, a large set of additional issued patents and
patent applications from Temple University ("the Oragen technology"). These
patents primarily cover the Company's technology platform that involves
modifications of nucleic acid polymers to achieve specifically configured base
pairs, or to alter nucleic acid structures to trigger dormant components of the
body's own immune/antiviral system and/or to inhibit selectively certain human
viruses such as hepatitis viruses, herpes viruses, etc.
Product Development
In the second quarter of 1998, the Company initiated the recruitment of
clinical investigators and ME/CFS patients to participate in the Phase III
confirmatory placebo- controlled clinical study of Ampligen in the treatment of
persons suffering from ME/CFS. The Company has a target of eventually enrolling
230 patients with the severely debilitating form of ME/CFS. As of August 3,
1998, the Company had begun enrollment of subjects into the pre-clinical or
baseline phase of the study.
The Company has entered research agreements with LabCorp., a subsidiary of
Laboratory Corporation of American (NYSE:LH), Workwell Corporation, and
Medical Graphics Corporation (NASD:MGCC) to provide high quality diagnostic data
during the Phase III study. LabCorp will carry out laboratory diagnostic tests
on samples sent from clinical trial sites to its location in Raritan, NJ.
Workwell will monitor treadmill oxygen consumption at each clinical trial center
using systems manufactured by Medical Graphics Corporation. Testing for a
specific biochemical marker (RNase L) will be done by R.E.D. Laboratories in
Brussels. These clinical research partners will help provide scientifically
valid and quality assured Phase III data. In the first quarter of 1998, the FDA
authorized expansion of the ME/CFS cost recovery treatment program. This open
treatment protocol with cost recovery has been ongoing since mid-1997 under the
auspices of the FDA. Under this protocol, the enrolled
patients pay for the Ampligen administered which totals about $7,200 for a
24 week treatment course. Fifty (50) patients with severe forms of CFS/ME have
been authorized for treatment.
At the end of June, 1998, 11 patients were being treated in a Belgium ME/CFS
cost recovery treatment program. This program was authorized by the Belgium
authorities
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and initiated in 1994. Since inception, over 60 patients have been treated
in this program, which is similar to the cost recovery treatment program now in
process in the United States.
Manufacturing
In 1994, the Company entered into an agreement with Bioclones, Ltd
("Bioclones"), a subsidiary of South African Breweries, Ltd., with respect
to the co-development of various RNA drugs, including Ampligen ("Bioclones
Agreement"). Pursuant to the Bioclones Agreement, Ribotech, Ltd. ("Ribotech"),
was formed in 1994 to produce the raw materials for Ampligen. Ribotech is
jointly owned by Bioclones (75.1%) and the Company (24.9%).
Ribotech, Ltd. has produced production runs of raw materials that were
accepted for use in the manufacture of Ampligen. The Drug Master File (DMF)
has been submitted to the FDA. Ribotech presently has the capacity to produce
the materials required to treat up to some 2,000 patients. Plans for a new
production plant are being developed. The planned facility will have the
capacity to produce the materials needed to treat up to 50,000 patients.
A liquid formulation process for Ampligen was initiated at Cook Imaging, a
major U.S.-based facility for preparing large volume parenteral drug products
under GMP ("Good Manufacturing Practice"). This liquid process is more
efficient and allows for greater volume manufacturing production needed to meet
projected requirements. Results with the product liquid format to date have
been encouraging with respect to product stability and ease of handling. The
liquid formulation format also eliminates the need for a major pharmacy function
nearby the clinical treatment site.
Distribution/Marketing
In February 1998, the Company entered into an agreement with Kimberly Home
Health Care, Inc. d/b/a Olsten Health Services ("Olsten"). This agreement
appoints Olsten as a distributor of products to U.S. patients enrolled in the
ME/CFS cost recovery protocol (AMP 511). Olsten agreed to purchase Ampligen
inventory for treating these patients. In addition, Olsten agreed to provide
initially up to $500,000 of support for other clinical program efforts including
identification of medical and economic benefits to patients receiving Ampligen.
The Company agreed to compensate Olsten for certain services in connection with
conducting clinical trials.
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Olsten has the capability to deliver treatment and services to chronic
disease patients including infusion services, home nursing and other medical
services through a national network of more than 500 locations. The Company
feels that Olsten's participation completes the product delivery process and
uniquely meets the needs of ME/CFS patients. Presently, Olsten has similar
partnerships in other disease categories with Glaxo Wellcome
(pulmonary hypertension), Biogen (multiple sclerosis), Rhone-Poulenc
Rorer (ALS), and Biotechnology General (AIDS related wasting disorder).
Europe
Incorporation papers have been filed in Belgium to incorporate a wholly owned
subsidiary named Hemispherx Biopharma Europe NV/S.A. This European subsidiary
will be based in Antwerp to serve the needs of the Company in pursuing ME/CFS
clinical tests, related clinical treatments and new drug marketing approval
in Belgium and other European (European Union) countries. The Company has
engaged the services of several senior executives and leading medical experts to
pursue this task.
The Company expects to file final drug marketing approval documents in the
European Union during 1998.
Recent Developments
Manufacturing received, tested and released for use in the production of
Ampligen 4,000,000 milligrams of raw material from Pharmacia Biotech.
Pharmacia was formerly a division of Upjohn and has been a long time supplier
of raw material used in the production of Ampligen.
The Company completed six (6) months of accelerated and long term stability
studies on the liquid formulation product produced by Cook Imaging. These
stability studies on liquid formulated product are required by the FDA.
Management initiated efforts to identify and locate additional liquid
formulation capacity. The Company anticipates that additional production
capacity will be needed in the future.
Subsequent to June 30, 1998, the Company has received over five million
dollars from various warrantholders electing to convert warrants and options
into common stock.
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RESULTS OF OPERATIONS
Six months ended June 30, 1998 versus six months ended June 30, 1997
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The Company reported a net loss of $3,059,164 for the six months ended June30,
1998 versus a net loss of $3,408,657 for the same period in 1997. Several
factors, including increased revenues, contributed to the $349,493 reduction
in losses in 1998.
The six months ended June 30, 1997 results include a one time non-cash preferred
stock conversion expense of $1,227,864 primarily due to the buy back and
settlement of the Series D Preferred Stock. Common stock compensation
expense of $421,289 was incurred in the six months ended June 30, 1998.
Revenues were up $120,025 (increased 194%) for the six months ending June 30,
1998 over the comparable period in 1997 due to the increased enrollment of
patients in the Cost Recovery Clinical Treatment Program's being conducted in
Belgium, Canada and the United States for the treatment of ME/CFS.
Research and development costs increased $680,591 in the six months ended
June 30, 1998. This increase reflects the expenses associated with increased
drug production efforts and the increase in personnel necessary to support the
forthcoming clinical programs in the United States and European Union including
the anticipated filings for drug marketing approvals.
General and administrative expenses in the six months ending June 30, 1998
increased by $462,757. This is due primarily to a common stock compensation
expense of $421,289 which is included in general and administrative expense.
This expense relates to the grant of warrants to non-employees for services
performed.
Interest income increased $144,952 in the six months ended June 30, 1998
compared to the same period in 1997 due to higher cash and cash equivalents
available for short term investments.
Three months ended June 30, 1998 versus three months ended June 30, 1997
- ------------------------------------------------------------------------
The Company reported a net loss of $1,578,575 for the three months ended June
30, 1998 versus a net loss of $1,097,423 for the same period in 1997. Several
factors contributed to the $481,152 increase in losses in 1998.
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Revenues were up $64,321 (approximately 200%) for the three months ending
June 30, 1998 over the comparable period for 1997 due to the increased
enrollment of patients in the Cost Recovery Clinical Treatment Program's being
conducted in Belgium, Canada and the United States for the treatment of ME/CFS.
Research and development costs increased $417,238 in the second quarter.
This increase reflects the expenses associated with increased drug production
efforts and the increase in personnel necessary to support the forthcoming
clinical programs in the United States and preparation for drug marketing
approvals in Europe.
General and administrative expenses in the three months ending June 30, 1998
increased by $201,614. This was due primarily to common stock compensation
expense of $204,481 which is included in general and administrative expense.
This expense relates to the grant of warrants to non-employees for services
performed.
Interest income increased $73,379 in the three months ended June 30, 1998
due to higher cash and cash equivalents available for short term investments.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 1998 was $6,556,764 compared to $8,965,714
at December 31, 1997, reflecting a net cash use of $2,408,950 to support
operations in the first six months of 1998. In addition to the cash and
cash equivalents of $6,556,764 at June 30, 1998, the Company had $1,000,470 in
short term investments. These funds with an aggregate total of $7,557,234
reflect the residual of the $9.4 million net proceeds of two private placements
of equity in October 1997.
Revenues from the ME/CFS clinical treatment cost recovery programs underway in
the United States, Canada and Belgium produced $181,850 in funds for the
first six months of 1998. Interest income on the short term investment of
surplus funds produced $255,670. Funds from shareholders exercising warrants to
purchase common stock totaled $56,508 in the first six months of 1998.
Subsequent to June 30, 1998, the Company has received $5,478,497 in funds from
various warrant holders converting warrants and options into common stock.
This conversion activity is expected to continue if the public trading price of
the Company's stock holds or exceeds its present level.
In March, 1997, the Company used the services of an investment banking firm to
privately place 5,000 shares of Series E Convertible Preferred Stock for
$5,000,000. The proceeds from this placement were used to retire the balance of
Series D
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Convertible Stock issued in July of 1996. As a result of this transaction in
1997, the Company incurred a $1.2 million stock conversion cost; however,
this had no effect on the net equity of the Company as it was offset by an
increase in additional paid-in capital. The holders of Series E Convertible
Preferred Stock shall receive cumulative dividends when and if declared by the
board of directors at the rate of $60 per share. Holders of Series E
Convertible Preferred Stock upon surrender of the certificates shall have the
right to convert the Series E Preferred into fully paid and non-assessable share
of Common Stock. As of June 30, 1998, holders of 2,650 shares of Series E
Preferred Stock had converted.
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 rocess, and higher than anticipated
expenses and lower than anticipated revenues rom certain of the Company's
clinical trials for which cost recovery from participants as been approved.
The Company recognizes the need to ensure that its operations will not be
adversely mpacted by the Year 2000 hardware and software issues. The
Company intends to confirm its compliance regarding Year 2000 issues for both
internal and external information systems by the end of 1998. This process will
entail communicating with significant suppliers, financial institutions,
insurance companies and other arties that provide significant services to the
Company. Expenditures required to make the Company Year 2000 compliant will be
expensed as incurred and are not expected to be material to the Company's
consolidated financial position or results of operations.
<PAGE>
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
In February, 1998, the Company filed a Registration Statement with the
Securities nd Exchange Commission (SEC) to register the common stock placed
in the September 997 private placements. The statement included common stock
underlying certain stock purchase warrants with registration rights.
In October, 1997, the Company's shares of common stock and Class A warrants
were listed with the American Stock Exchange and will trade under the symbols
HEB and HEBW respectively. Accordingly, the shares were delisted from the Nasdaq
SmallCap Market.
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
<PAGE>
<PAGE> 18
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: August 13, 1998 William A. Carter, M.D.
Chief Executive Officer & President
/S/ Robert E. Peterson
--------------------------
Date: August 13, 1998 Robert E. Peterson
Chief Financial Officer
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<PERIOD-END> JUN-30-1998
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