UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 2001
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _________________
Commission File Number 2-89332
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
(Exact name of registrant as specified in its charter)
New Jersey 22-2502556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
783 Jersey Avenue, New Brunswick, New Jersey 08901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732)249-3250
Securities registered pursuant to Section 12(g) of the Act: None
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 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
TABLE OF CONTENTS
Page
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of
Security Holders 5
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 8
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes and Disagreements with Accountants on
Accounting and Financial Disclosure 17
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management 18
Item 13. Certain Relationships and Related Transactions 19
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 19
20
PART 1
Item 1. Business
Interferon Sciences Research Partners, Ltd., a limited partnership (the
Partnership"), was formed on February 2, 1984, under the laws of the State of
New Jersey, and commenced operations on October 26, 1984. The Agreement of
Limited Partnership is among the Partnership, Interferon Sciences Development
Corporation (the "General Partner"), a wholly owned subsidiary of Interferon
Sciences, Inc. ("ISI"), and those parties admitted to the Partnership as Limited
Partners.
The business of the Partnership is (i) to develop externally applied
(topical) formulations of alpha interferon produced by recombinant DNA
techniques to be used in the treatment of herpes genitalis (the "Product"), (ii)
to develop large-scale processes for the formulation of the Product, (iii) to
establish the safety and efficacy of the Product through clinical testing, (iv)
to obtain the regulatory approvals necessary for the manufacture and sale of the
Product, and (v) to earn income from the worldwide sale of the Product.
In order to conduct these activities, the Partnership entered into certain
agreements with ISI during 1984, the contents of which are summarized below.
The Cross License Agreement
ISI granted the Partnership a worldwide, nonexclusive license, with the
right to grant sublicenses, to use all of ISI's know-how, patent rights and
biological materials, (the "ISI Technology") solely for the development,
manufacture, and sale of the Product. The Partnership granted ISI a worldwide,
exclusive license, with the right to grant sublicenses, to use all of the
Partnership's know-how, patent rights, and biological materials developed during
the development period (the "Partnership Technology") for all purposes other
than the development, manufacture, or sale of the Product. ISI agreed to pay
royalties to the Partnership based on sales of, and revenues received from
sublicensing to other companies the right to manufacture and sell, the Product.
ISI agreed to pay royalties to the Partnership in respect of products that
compete with the Partnership's Product (the "Competitive Products") and products
which utilize Partnership Technology (the "Other Products").
Under the Cross License Agreement and the Interim License Agreement (see
below), the Partnership will be entitled to receive a royalty equal to 4% of the
sales by ISI of the Product and Competitive Products and 15% of the revenues
received by ISI from sublicensing the Product and Competitive Products. To date,
the Partnership has not received any royalties on these agreements.
The Development Contract
ISI and the Partnership entered into a Development Contract to develop the
Product. As of December 31, 1986, $4,555,000 was paid to ISI for the work it
performed as contractor under the Development Contract.
Under the Development Contract, ISI agreed to use its best efforts to
perform all research and development necessary to complete development, to
conduct clinical tests, and to obtain regulatory approval of the Product. In May
1987, ISI filed a Product License Application with the Food and Drug
Administration for approval to market the Product. However, the FDA determined
that additional clinical trial data would be required. Since there were no funds
left to continue the development of this Product, all work was discontinued
after this filing.
Under the terms of the Development Contract, if the Partnership did not
have sufficient funds to complete the development of the Product, ISI was
required, subject to certain conditions, to make sufficient funds available to
the General Partner to allow it to make an additional contribution (the "Overrun
Contribution") to the Partnership of $433,138. As of September 30, 1986, the
Partnership expended all of its funds and since such time all of the activities
of the Partnership have been funded by the General Partner. Through December 31,
2001 the General Partner had made an Overrun Contribution of $1,997,000,
although none have been made in the last three years. Under the terms of the
Partnership Agreement, the General Partner's Overrun Contribution changes the
way in which distributions are made by the Partnership. For a description of the
extent of changes in distributions by the Partnership to the Limited Partners
due to the General Partner making the Overrun Contribution, see Item 5 "Market
for the Registrant's Common Equity and Related Stockholder Matters."
The Partnership has not made any payments to ISI for research and
development pursuant to the Development Contract since 1986.
Interim License Option
ISI has an option (the "Interim License Option") to acquire a worldwide,
exclusive license (the "Interim License") to use the Partnership Technology for
the development, manufacture, and sale of the Product. The Interim License
Option will be exercisable for a period of 90 days, commencing on the date (the
"Interim License Option Date") which is the earlier of the date on which the
Product is (i) approved for sale in the United States by the FDA or (ii) for
sale in any of the Major Market Countries by a similar regulatory authority.
If the Interim License Option is exercised, the Partnership will continue
to be entitled to receive royalties with respect to the Product, Competitive
Products, and Other Products.
Purchase Option
ISI has an option (the "Purchase Option") to acquire from each Limited
Partner all of such Limited Partner's interest in the Partnership. The Purchase
Option is exercisable for a period (the "Purchase Option Period") of 90 days
(subject to a 90-day extension under certain circumstances) commencing on the
date (the "Purchase Option Date") which is the earlier of (i) the date on which
the Partnership has received from ISI under the Interim License an aggregate of
$3,000,000 in payments with respect to the Product (provided that the Purchase
Option may not be exercised earlier than 14 months after the Interim License
Option Date) or (ii) the fourth anniversary of the date the Interim License
Option is exercised. If ISI exercises the Purchase Option, it will be obligated
to make a one-time payment of $557 per Unit to the Limited Partners in exchange
for their Units on the date it exercises the Purchase Option (the "Purchase
Option Exercise Date") and to pay royalties to the limited partners (the "Final
Limited Partners") for a period of 15 years thereafter. In the event the
Purchase Option is exercised, the royalty rates (i) will increase to 5% of sales
and 20% of sublicensing revenues and (ii) no royalties will be payable in
respect of Other Products.
Current Status
During May 1987, ISI filed a Product License Application with the Food and
Drug Administration (FDA) for approval to market ALFERON Gel. This filing was
supplemented in 1989 with an updated clinical summary and a comprehensive
statistical analysis of the completed trials. At a meeting with the FDA in
February 1990, the FDA indicated that additional process development and
clinical trials would be necessary prior to approval of ALFERON Gel. ISI
believed, at that time, that the costs to complete the required process
development and clinical trials would be substantial, and there could be no
assurance that the clinical trials would be successful. As a result of the above
events, in March 1992, ISI withdrew its FDA Product License Application for
ALFERON Gel containing recombinant interferon.
ISI does not presently intend to exploit ALFERON Gel (the Partnership
Product). ISI had focused its clinical efforts on ALFERON N Gel, a formulation
containing ISI's natural alpha interferon (interferon alfa-n3) that was
developed for the topical treatment of viral diseases and cancers affecting the
skin and mucosal tissues. A Phase 2 pilot clinical trial utilizing its
reformulated ALFERON N Gel has been completed for the treatment of cervical
dysplasia. Under the terms of the Partnership Agreement, a royalty may be
payable to the Partnership by reason of the commercial exploitation of ALFERON N
Gel to the extent that it utilizes any of the Partnership Technology, which
royalty will be adjusted based upon the proportional funding contributions to
the development of ALFERON N Gel by the Partnership and ISI. ISI currently does
not plan to continue the development of ALFERON N GEL. However, if ISI obtains
substantial additional financing in the future, or a sponsor can be secured, ISI
may exploit ALFERON N Gel for herpes genitalis that may entitle the Partnership
to a royalty in respect to a product that competes with the Partnership Product.
This royalty will be adjusted based upon the proportional funding contributions
to the development of ALFERON N Gel by the Partnership and ISI.
THE PRODUCT
Herpes Virus Infections
Human herpes viruses either cause or are associated with a whole spectrum
of diseases. A distinctive feature of the herpes virus is its ability to
establish a latent infection following a primary infection. Reactivation of the
latent infection causes recurrent acute symptoms. Herpes genitalis is one of the
most common of the sexually transmitted diseases. In the acute primary phase it
causes painful genital lesions that may persist for several weeks. These may
recur several times a year and persist for approximately seven days during each
recurrence. The goal of the research and development program of the Partnership
will be to develop a treatment for herpes genitalis which will, in general,
accelerate symptom relief and shorten healing time.
Natural Human Alpha Interferon
Interferons are a group of proteins produced and secreted by cells to
combat diseases. Researchers have identified four major classes of human
interferon: alpha, beta, gamma and omega.
Alpha interferons are manufactured commercially in three ways: by genetic
engineering, by cell culture, and from human white blood cells. In the United
States, only two types of alpha interferon are approved for commercial sale:
recombinant (genetically engineered) alpha interferon and Natural Alpha
Interferon, which is manufactured from human white blood cells. Outside of the
United States, sales of alpha interferon produced by cell culture account for a
significant portion of the market.
An analysis of Natural Alpha Interferon shows that it is composed of a
family of proteins containing many different molecular species of interferon. In
contrast, recombinant alpha interferons each contain only a single species.
Researchers have reported that the various species of interferon may have
differing anti-viral activity depending upon the strain of virus. Natural Alpha
Interferon presents a broad complement of species. Natural Alpha Interferon is
also glycosylated, or partially covered with sugar molecules, which does not
occur with recombinant alpha interferon.
Published studies suggest that natural human alpha interferon, if applied
topically to the area of herpes virus infections, can accelerate symptom relief
and shorten healing time. This is important epidemiologically because it reduces
the potential of transmitting these diseases through personal contact. In
addition, controlled human clinical testing conducted by ISI with topical
formulations of natural alpha interferon have shown some evidence of efficacy in
the treatment of herpes genitalis.
Competition
The General Partner believes that two products are presently sold in the
United States for the treatment of recurrent genital herpes. Zovirax
(manufactured by Glaxo Wellcome Inc.) that contains acyclovir and is
administered orally, topically, or intravenously and Famvir (manufactured by
SmithKline Beecham) that contains famcyclovir and is administered orally. The
only current treatment for cervical dysplasia in the United States is surgery.
Unpredictability of Patent Protection
The United States Patent and Trademark Office granted two patents to ISI
that disclose and claim topical interferon preparations. The patents encompass
interferon preparations for the topical delivery of one or more interferons to
the site of a disease that respond therapeutically to interferon, and a system
for delivering interferon topically which prevents oxidation of the protein. The
inventions specifically encompass the topical treatment for treating viral
diseases, such as herpes genitalis, with alpha interferon. It is not certain
that other patents will be issued, or, if issued, that they will afford ISI
protection from competitive products.
Notwithstanding any patent obtained with respect to ALFERON N Gel, it is
possible that others have or may develop equivalent or superior products or
technologies.
Royalty Obligations
ISI is a party to certain license agreements pursuant to which it is
obligated to pay royalties to F. Hoffmann LaRoche ("Roche") and the Partnership
based upon commercial exploitation of ALFERON N Gel. Under the terms of such
license agreements, ISI would pay royalties up to 13.5% of the net sales of
ALFERON N Gel.
Personnel
The Partnership and its General Partner, Interferon Sciences Development
Corporation, a wholly owned subsidiary of ISI, do not have any full-time
employees. As of January 31, 2002, ISI employed 39 persons, who, on an as-
needed basis, could dedicate a portion of their time to Partnership activities.
Item 2. Properties
The Partnership itself does not own or lease any properties. The
Partnership's business is conducted at the facilities of the General Partner,
Interferon Sciences Development Corporation, located in New Brunswick, New
Jersey. Under the Development Agreement, ISI could utilize a portion of its
facilities to conduct the research and development activities of the
Partnership.
ISI owns two free-standing buildings comprising approximately 44,000 square
feet which are located in New Brunswick, New Jersey. ISI occupies and utilizes
the space for staff offices, for the production and purification of interferon,
for quality control and research activities, and for the storage of raw, in
process and finished materials.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
No public or other market exists for interests in the Partnership.
Partnership interests are transferable subject to the satisfaction of certain
conditions contained in Article 6 (as amended) of the Agreement of Limited
Partnership incorporated herein by reference.
The following information as of December 31, 2001 relates to the
ownership of Partnership interests:
Title of Class Number of Record Holders
General Partner Interest One
Limited Partnership Interests 816
There have been no cash distributions to the partners to date. Future
distributions, if any, will be made by the General Partner to the partners as
soon as practicable after the end of any fiscal quarter, in proportion to the
partners' respective capital accounts as of the end of such quarter.
Distributable cash, which must be distributed to the partners, is generally
defined as the excess of cash revenues over certain expenditures and other
amounts determined by the General Partner to be necessary for the proper
operation of the Partnership's business. The capital account of each partner
will be credited with such partner's cash contributions to the Partnership,
debited by the amount of any such distribution from the Partnership to such
partner, and credited or debited with such partner's allocation of the net gain
or loss of the Partnership for Federal income tax purposes ("Profits" and
"Losses", respectively).
Profits and losses of the Partnership and each item of Partnership income,
gain, credit, loss, and deduction shall be allocable as of the end of each
Partnership fiscal year 99% to the Limited Partners and 1% to the General
Partner, provided, however, if the General Partner contributes additional funds
to continue the development of a Product prior to FDA approval, each item of
deduction arising from the expenditure of such funds will be allocable 100% to
the General Partner, and each item of income, gain, or credit will be allocated
(i) 99% to the Limited Partners and 1% to the General Partner until such time as
the Limited Partners have received distributions from the Partnership equal to
50% of their aggregate capital contributions, (ii) thereafter, 50% to the
General Partner and 50% to the Limited Partners until the General Partner has
received distributions equal to 120% of such contributed funds, and (iii)
thereafter, 99% to the Limited Partners and 1% to the General Partner.
Similarly, if the General Partner has contributed funds to the development
of any Product prior to FDA approval, and, as of the Purchase Option Exercise
Date, has not yet received distributions equal to 120% of such contributed funds
as required by the Partnership Agreement (see "Summary of the Partnership
Agreement"), then 50% of the royalties otherwise payable to the Final Limited
Partners shall be paid to the General Partner until the amounts so paid to the
General Partner, together with all distributions received after the date of such
contribution by the General Partner, equal 120% of such contribution. If, after
the Purchase Option Exercise Date, ISI contributes funds to the development of
any Products prior to FDA approval, then 50% of the royalties otherwise payable
to the Final Limited Partners shall be retained by ISI until ISI has retained
120% of the funds so contributed by ISI. However, in no event will the royalties
payable to the Final Limited Partners be so reduced until the Limited Partners
and the Final Limited Partners have received aggregate distributions and royalty
payments equal to 50% of their aggregate capital contributions. Because of the
foregoing allocation and royalty adjustments, the contribution of funds by the
General Partner (or ISI) will have a material effect on the potential
distributions (or royalties) to be received by the Limited Partners (or the
Final Limited Partners).
Item 6. Selected Financial Data
Year Ended
December 31,
2001 2000 1999 1998 1997
--------------------------------------------
Revenue None None None None None
Net income (loss) None None None None None
Net income (loss) per
Limited partnership unit None None None None None
Net income (loss) - None None None None None
General Partner
Distributions None None None None None
to partners
December 31,
2001 2000 1999 1998 1997
---------------------------------------------
Total assets None None None None None
Long-term debt None None None None None
Working capital None None None None None
Partners' capital None None None None None
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition and Liquidity
During 1984, the Partnership sold 1038.7 units of limited partnership
interests and received net proceeds of approximately $4,415,000 from such sale.
The primary use of the proceeds was to fund research and development and
clinical trials necessary for obtaining regulatory approval of a topical
formulation containing recombinant alpha interferon for the treatment of herpes
genitalis (ALFERON Gel). The Partnership entered into a Development Contract
with Interferon Sciences, Inc. (ISI) to conduct such research. The Partnership
paid ISI $4,555,000 under such agreement through 1986. By September 30, 1986,
the Partnership had exhausted all of its available funds for the funding of
research and development of ALFERON Gel. The General Partner agreed to
contribute up to an additional $433,000, under certain conditions, to continue
the research. Such amount was based on the number of units sold in the offering.
Notwithstanding that commitment, from September 1986 to October 1990, the
General Partner contributed $1,997,000 towards the cost of such research. During
May 1987, ISI filed a Product License Application with the Food and Drug
Administration (FDA) for approval to market ALFERON Gel. This filing was
supplemented in 1989 with an updated clinical summary and a comprehensive
statistical analysis of the completed trials. At a meeting with the FDA in
February 1990, the FDA indicated that additional process development and
clinical trials would be necessary prior to approval of ALFERON Gel. ISI
believed, at that time, that the costs to complete the required process
development and clinical trials would be substantial, and there could be no
assurance that the clinical trials would be successful. As a result of the above
events, in March 1992, ISI withdrew its FDA Product License Application for
ALFERON Gel containing recombinant interferon.
The General Partner does not anticipate that the Partnership will receive
any revenues in 2002. In addition, the Partnership is not in a position to incur
additional expenses since it has exhausted all its available funds. The
independent auditors' report, dated February 20, 2002, on the Partnership's
financial statements as of and for the year ended December 31, 2001 includes an
explanatory paragraph that states that ISI has suffered recurring losses from
operations, has an accumulated deficit and has limited liquid resources that
raise substantial doubt about the Partnership's ability to continue as a going
concern.
ISI does not presently intend to exploit ALFERON Gel (the Partnership
Product). ISI had focused its clinical efforts on ALFERON N Gel, a formulation
containing ISI's natural alpha interferon (interferon alfa-n3) that was
developed for the topical treatment of viral diseases and cancers affecting the
skin and mucosal tissues. A Phase 2 pilot clinical trial utilizing its
reformulated ALFERON N Gel has been completed for the treatment of cervical
dysplasia. Under the terms of the Partnership Agreement, a royalty may be
payable to the Partnership by reason of the commercial exploitation of ALFERON N
Gel to the extent that it utilizes any of the Partnership Technology, which
royalty will be adjusted based upon the proportional funding contributions to
the development of ALFERON N Gel by the Partnership and ISI. ISI currently does
not plan to continue the development of ALFERON N GEL. However, if ISI obtains
substantial additional financing in the future, or a sponsor can be secured, ISI
may exploit ALFERON N Gel for herpes genitalis that may entitle the Partnership
to a royalty in respect to a product that competes with the Partnership Product.
This royalty will be adjusted based upon the proportional funding contributions
to the development of ALFERON N Gel by the Partnership and ISI.
Results of Operations
The Partnership was inactive during the three years ended December 31,
2001, and has generated no revenue nor incurred any expense during that period.
The Partnership is dependent on the General Partner for on-going financial
support to cover incidental costs of retaining the Partnership. See Note 6 to
the financial statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 10
Financial Statements:
Balance Sheets -
December 31, 2001 and 2000 11
Statements of Operations -
Years ended December 31, 2001, 2000 and 1999 12
Statements of Cash Flows -
Years ended December 31, 2001, 2000 and 1999 13
Statements of Changes in Partners' Capital -
Years ended December 31, 2001, 2000 and 1999 14
Notes to Financial Statements 15
Independent Auditors' Report
The Partners
Interferon Sciences Research Partners, Ltd.
We have audited the financial statements of Interferon Sciences Research
Partners, Ltd. as listed in the accompanying index. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Interferon Sciences Research
Partners, Ltd. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
Interferon Sciences Research Partners, Ltd. will continue as a going concern.
The Partnership has no assets and is ultimately reliant upon Interferon
Sciences, Inc. for funding. As indicated in Note 6 to the financial statements,
Interferon Sciences, Inc. has suffered recurring losses from operations, has an
accumulated deficit, a working capital deficiency, and has limited liquid
resources. These factors raise substantial doubt about the Partnership's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Princeton, New Jersey
February 20, 2002
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
BALANCE SHEETS
December 31,
------------
2001 2000
-------------------
ASSETS
Total assets $ --- $ ---
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Partners' capital
Limited partners $ --- $ ---
General partner --- ---
------- -------
Total partners' capital --- ---
------- -------
Total liabilities and partners' capital $ --- $ ---
======= =======
The accompanying notes are an integral part of these financial statements.
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
STATEMENTS OF OPERATIONS
Year Ended December 31,
2001 2000 1999
--------------------------------
Net income (loss) $ -- $ -- $ --
======== ======== ========
Net income (loss) - Limited Partners $ -- $ -- $ --
Net income (loss) - General Partner -- -- --
-------- -------- --------
Net income (loss) $ -- $ -- $ --
======== ======== ========
Net income Net income Net income
(loss) (loss) (loss)
per unit per unit per unit
---------- ---------- ----------
Net income (loss) - Limited Partners
(1038.7 units outstanding) $ -- $ -- $ --
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---------------------------
Net change in cash $ -- $ -- $ --
-------- -------- --------
Cash at beginning of year -- -- --
-------- -------- --------
Cash at end of year $ -- $ -- $ --
======== ======== ========
The accompanying notes are an integral part of these financial statements.
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
Years ended December 31, 2001, 2000 and 1999
Total
General Partners'
Limited Partners Partner Capital
Units Amount Amount Amount
Balance at December 31, 1998 1038.7 $ -- $ -- $ --
Capital contribution -- -- -- --
Net income (loss) -- -- -- --
-------- -------- -------- --------
Balance at December 31, 1999 1038.7 -- -- --
Capital contribution -- -- -- --
Net income (loss) -- -- -- --
-------- -------- -------- --------
Balance at December 31, 2000 1038.7 -- -- --
Capital contribution -- -- -- --
Net income (loss) -- -- -- --
-------- -------- -------- --------
Balance at December 31, 2001 1038.7 $ -- $ -- $ --
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
INTERFERON SCIENCES RESEARCH PARTNERS, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Interferon Sciences Research Partners, Ltd., a New Jersey Limited
Partnership (the Partnership), was established in February 1984 and commenced
operations in October 1984. The General Partner is Interferon Sciences
Development Corporation (ISD), a wholly owned subsidiary of Interferon Sciences,
Inc. (ISI).
In February 1984, the Partnership filed a registration statement, which
became effective in May 1984, with the Securities and Exchange Commission,
covering a public offering of Limited Partnership interests (Units). During
1984, the Partnership sold 1,038.7 Units for gross proceeds of $5,193,500
resulting in net proceeds of $4,414,475 to the Partnership. The offering expired
April 1, 1985 with no additional Units being sold.
The business of the Partnership is to fund research and development and
clinical trials necessary for obtaining regulatory approval of a topical
formulation ("the Product") containing recombinant alpha interferon for the
treatment of herpes genitalis (ALFERON Gel). In order for the Partnership to
commence its business activities, the Partnership entered into a Cross License
Agreement, a Development Contract, an Interim License Option and a Purchase
Option with ISI (see Note 5).
Note 2. Summary Of Significant Accounting Policies
Research and development costs - Payments to ISI for research and
development, pursuant to the Development Contract, were expensed in the period
the costs were incurred.
Income taxes - The Partnership's financial statements do not include
provisions for income taxes. Taxes, if any, are the liability of the individual
partners. The Partnership reports its operations on the cash method of
accounting for Federal income tax purposes.
Net income (loss) per limited partnership unit - Aggregate losses allocated
to the limited partners were limited to the extent of their capital accounts.
Note 3. Partnership Allocation Of Profit And Loss
Profits and losses of the Partnership are allocated 99% to the Limited
Partners and 1% to the General Partner, subject to adjustment when the General
Partner contributes additional funds to the Partnership. Since 1986, all losses
have been funded by the General Partner, and consequently all losses since that
time have been allocated to the General Partner.
Note 4. Funding
The Partnership exhausted its available funds in 1986. The General Partner
had originally agreed to contribute up to an additional $433,000 to continue
research, under certain circumstances. During the period beginning September 30,
1986, the date on which the Partnership had exhausted its available funds,
through October 31, 1990, the General Partner contributed $1,997,000 towards the
cost of such research. Beginning November 1990, the General Partner discontinued
funding the development of ALFERON Gel containing recombinant interferon.
Beginning in 1992, ISI commenced further development of ALFERON Gel using ISI's
natural source multi-species alpha interferon (ALFERON N Gel) in place of
recombinant interferon. If the General Partner does not resume funding or other
sources of cash do not become available, the Partnership will not be able to
fund the Partnership Product. The Partnership is dependent on the General
Partner for on-going financial support to cover incidental costs of retaining
the Partnership. See Note 6 to the financial statements.
Note 5. Related Party Transactions
During 1984, the Partnership and ISI entered into several agreements
including a Development Contract whereby substantially all of the net proceeds
of the offering were paid to ISI in periodic payments over the term of the
Partnership's development program. Such payments were used to fund research and
development and clinical trials necessary for obtaining regulatory approval with
respect to ALFERON Gel. Through 1986, the Partnership paid ISI $4,555,000, under
this agreement. Through 1990, ISD contributed $1,997,000, to the Partnership,
which used such funds to pay for additional research and development for the
benefit of the Partnership. Beginning in 1992, ISI commenced further development
of ALFERON Gel using ISI's natural source multi-species alpha interferon in
place of recombinant interferon.
The Partnership and ISI have also entered into a Cross License Agreement
pursuant to which the Partnership has obtained from ISI a worldwide,
nonexclusive license to use the ISI Technology (as defined) and ISI has obtained
from the Partnership a worldwide, exclusive license to use the Partnership
Technology (as defined) for all purposes other than the development,
manufacture, or sale of ALFERON Gel. The agreement also provides for the payment
by ISI to the Partnership of royalties based on specified levels of sales during
the development phase at the rates specified below.
For a period of 90 days commencing on the earlier of the dates on which
ALFERON Gel is approved for sale in the United States by the Food and Drug
Administration or approved for sale in any of the Major Market Countries (as
defined) by a similar regulatory authority, ISI will have an option to acquire a
worldwide, exclusive license to use the Partnership Technology for the
development, manufacture and sale of ALFERON Gel. If ISI exercises the option,
it will be obligated to pay the Partnership royalties at the rates of 4% of
sales and 15% of sublicense revenues.
ISI will also have an option to acquire from each Limited Partner all of
such Limited Partner's interest in the Partnership. If ISI exercises this
option, it will be obligated to make a one-time payment of approximately
$580,000, plus royalties of 5% and 20% of specified sales and sublicense
revenues, respectively, for a period of 15 years. All of the payments made by
ISI will be divided among the Limited Partners in proportion to their respective
partnership unit percentages. ISI may terminate its obligation to pay future
royalties to the Partnership by making a one time payment in cash or common
stock of ISI having a fair market value equal to $20,774,000 on or before the
second anniversary of the purchase option exercise date and increasing to
$31,161,000 after the third anniversary of such date, all reduced by royalty
payments actually made under the terms of the purchase option, provided,
however, that such payment may not be less than $12,118,000.
Note 6. Interferon Sciences Development Corporation and Interferon Sciences,Inc.
ISD, the General Partner, is a wholly owned subsidiary of ISI. From
September 1986 through October 1990, ISD's total capitalization was used to fund
Partnership expenses. ISD was totally dependent upon ISI for capital to be able
to fund the Partnership during this period and is totally dependent on ISI for
future capital. Beginning in 1992, ISI commenced development of ALFERON N Gel
using its own funds. ISI has had continuing losses from operations, has an
accumulated deficit, a working capital deficiency, and has limited liquid
resources which raise substantial doubt about its ability to continue as a going
concern and therefore there is substantial doubt about the Partnership's ability
to continue as a going concern.
The Partnership is dependent on the General Partner for on-going financial
support to cover incidental costs of retaining the Partnership. Such costs are
paid by ISI and, as they are de minimis, are not reflected on the accompanying
financial statements. See Note 4 to the financial statements.
Summarized consolidated financial information of ISI is as follows:
December 31,
2001 2000
------------------------
Assets
Cash and Cash Equivalents $ 1,184,889 $ 3,658,805
Receivable from sale of state
net operating loss carryovers 1,483,861
Accounts and other receivables 123,389 190,937
Inventories 252,402 837,300
Other current assets 17,608 17,488
Property, plant and equipment, net 2,078,492 2,509,580
Intangible and other assets, net 170,442 299,867
---------------------------------
$ 3,827,222 $ 8,997,838
============ =============
Liabilities and Stockholders' Equity
(Deficiency)
Accounts payable and accrued expenses 4,353,209 2,578,827
Payables to affiliated companies 495,745 566,639
Equity in losses in excess of
investment in Metacine 290,994
Stockholders' equity (deficiency) (1,312,726) 5,852,372
---------------------------------
$ 3,827,222 8,997,838
============= =============
Year Ended December 31,
2001 2000
------------------------
Total revenues $ 1,498,603 $ 1,068,913
Net loss (7,249,576) (2,981,672)
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Exclusive management and control of the business of the Partnership is vested in
the General Partner, Interferon Sciences Development Corporation. Accordingly,
the following information pertains to the Directors and Officers of Interferon
Sciences Development Corporation:
Positions Held with General Partner
and Principal Occupations for the
Name Age Past Five Years
Samuel H. Ronel 65 President and a Director of the
General Partner; Chairman of the
Board of ISI.
Stanley G. Schutzbank 56 Executive Vice President and a
Director of the General Partner;
President and a Director of ISI.
Donald W. Anderson 52 Chief Financial Officer of the
General Partner; Controller and
Secretary of ISI.
Directors of Interferon Sciences Development Corporation are elected annually by
ISI, the sole shareholder, and officers are elected annually by the Board of
Directors. There are no family relationships between any of the directors or
officers.
Item 11. Executive Compensation
The Directors and Officers of the General Partner, Interferon Sciences
Development Corporation, do not receive any direct remuneration from the
Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of all persons known to the
Partnership to be the beneficial owners of more than 5% of any class of the
Partnership's securities as of December 31, 2001 is as follows:
Name and Address Amount and Nature
Title of of Beneficial of Beneficial Percent
Ownership Ownership Ownership of Class
General Interferon Sciences One General Partner 100%
Partner Interest Development Corporation Interest
783 Jersey Avenue
New Brunswick, NJ
As of December 31, 2001, no Limited Partner owns more than five percent of
the Limited Partnership Units outstanding.
Exclusive management and control of the Partnership's business is vested in
Interferon Sciences Development Corporation, the General Partner of the
Partnership. Information regarding ownership of limited partnership interests of
the directors, and all directors and officers as a group, of the General Partner
as of December 31, 2001 is as follows:
Amount and Nature
of Beneficial Percent
Name of Beneficial Owner Ownership of Class
Samuel Ronel One Interest ---
Stanley Schutzbank One Interest ---
(Directors and Officers
as a Group) Two Interests ---
Item 13. Certain Relationships and Related Transactions
All of the officers and directors of the General Partner are officers
and/or directors of ISI. During 1984, the Partnership entered into certain
agreements with ISI, the summarized contents of which are set forth in Item 1.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page
(a) (1) The following financial statements are included in Part II,
Item 8:
Independent Auditors' Report 10
Financial Statements:
Balance Sheets - December 31, 2001 and 2000 11
Statements of Operations - Years Ended
December 31, 2001, 2000 and 1999 12
Statements of Cash Flows - Years Ended
December 31, 2001, 2000 and 1999 13
Statements of Changes in Partners' Capital -
Years Ended December 31, 2001, 2000 and 1999 14
Notes to Financial Statements 15
(a) (2) All schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(a) (3) Exhibits
None
(b) There were no reports on Form 8-K filed by the Registrant
during the last quarter of the Period covered by this
report.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Interferon Sciences Research Partners, Ltd.
A Limited Partnership
(Registrant)
By: Interferon Sciences
Development Corporation
General Partner
/s/ Samuel H. Ronel, Ph.D.
--------------------------
Samuel H. Ronel, Ph.D.
President
Dated: April 15, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title
/s/ Samuel H. Ronel, Ph.D. President and Director
- --------------------------
Samuel H. Ronel, Ph.D.
/s/ Stanley G. Schutzbank, Ph.D. Executive Vice President and Director
- --------------------------------
Stanley G. Schutzbank, Ph.D.
/s/ Donald W. Anderson Controller (Principal Accounting and
- ---------------------- Financial Officer)
Donald W. Anderson
Dated: April 15, 2002