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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-15271
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CISTRON BIOTECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 22-2487972
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Bloomfield Avenue, Pine Brook, New Jersey 07058
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(973) 575-1700
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 and 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes _X_ No ___
The aggregate number of Registrant's outstanding shares on November 10,
1997 was 26,884,990 shares of Common Stock, .01 par value.
Page 1 of 10 pages
CISTRON BIOTECHNOLOGY, INC.
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(A DEVELOPMENT STAGE COMPANY)
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INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of September 30, 1997 and June 30, 1997..... 3
Statements of operations for the three months ended
September 30, 1997 and 1996................................... 4
Statements of cash flows for the three months ended
September 30, 1997 and 1996................................... 5
Notes to financial statements................................. 6
Item 2. Management's discussion and analysis of results
of operations and financial condition......................... 7
PART II - OTHER INFORMATION........................................... 9
Signatures.................................................... 10
2
CISTRON BIOTECHNOLOGY, INC.
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BALANCE SHEETS
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June 30, September 30,
1997 1997
------------ -------------
CURRENT ASSETS: (unaudited)
Cash and equivalents $ 6,368,228 $ 5,616,185
Accounts receivable-trade 55,309 43,052
Accounts receivable-other 3,000,000 3,000,000
Inventories 4,278 3,163
Prepaid expenses 475 475
Notes receivable $230,000; reserve $230,000 - -
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TOTAL CURRENT ASSETS 9,428,290 8,662,875
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ACCOUNTS RECEIVABLE - OTHER - Long Term 6,249,130 6,339,570
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PROPERTY AND EQUIPMENT:
Machinery and equipment 533,374 528,821
Furniture and fixtures 147,113 147,113
Leasehold improvements 77,674 77,674
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758,161 753,608
Less: Accumulated depreciation 726,877 728,190
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31,284 25,418
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SECURITY DEPOSITS 23,938 23,938
PATENTS, Net of accumulated amortization ---------- ----------
of $11,886 and $12,549, respectively 25,219 24,557
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TOTAL ASSETS $ 15,757,861 $ 15,076,358
LIABILITIES AND SHAREHOLDERS' EQUITY ========== ==========
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 869,909 $ 293,271
Taxes payable 46,175 -
Other current liabilities 705,000 705,000
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TOTAL CURRENT LIABILITIES 1,621,084 998,271
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Deferred income taxes 885,090 807,927
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Other non-current liabilities 1,505,980 1,527,793
SHAREHOLDERS' EQUITY: ---------- ----------
Common stock, $.01 par value;
50,000,000 shares authorized;
issued and outstanding 26,884,990 shares
and 26,884,990 shares, respectively 268,850 268,850
Additional paid-in capital 8,616,253 8,681,253
Earnings accumulated during the
development stage 2,860,604 2,792,264
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TOTAL SHAREHOLDERS' EQUITY 11,745,707 11,742,367
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,757,861 $ 15,076,358
========== ==========
See accompanying notes to financial statements.
3
CISTRON BIOTECHNOLOGY, INC.
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STATEMENTS OF OPERATIONS
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(UNAUDITED)
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February 2, 1982
(commencement of
Three Months ended September 30, operations) to
1996 1997 September 30,1997
------------ -------------- -----------------
Sales..................................... $ 175,480 $ 175,290 $ 9,035,070
Cost of sales............................. 62,977 81,315 3,888,966
---------- ---------- ----------
Gross profit....................... 112,503 93,975 5,146,104
Other revenues:
Litigation settlements.................. - - 14,684,206
License fees and funded research........ 100,419 100,000 4,006,149
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Operating income before expenses... 212,922 193,975 23,836,459
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Research and development.................. 24,070 98,420 8,094,201
Administrative and marketing.............. 385,238 319,393 10,480,635
Occupancy................................. 44,753 46,122 2,318,572
---------- ---------- ----------
Total expenses............................ 454,061 463,935 20,893,408
---------- ---------- ----------
Operating income (loss)............ (241,139) (269,960) 2,943,051
Interest income/(expense) - net........... - 138,282 445,981
Other expense............................. - - 59,895
Amortization of deferred financing costs.. - - 173,079
Acquisition expense....................... - - 429,620
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Income (loss) before income taxes
and extraordinary credit................ (241,139) (131,678) 2,726,438
Income tax provision...................... - (63,338) 1,696,490
---------- ---------- ----------
Income/(loss) before extraordinary credit. (241,139) (68,340) 1,029,948
Extraordinary credit - benefit of tax loss
carryforward............................ - - 262,838
Net income/(loss).................. $ (241,139) $ (68,340) $ 1,292,786
========== ========== ==========
Net loss per share................ $ (0.01) $ -
========== ==========
Weighted average shares outstanding........ 26,884,990 26,884,990
========== ==========
See accompanying notes to financial statements
4
CISTRON BIOTECHNOLOGY, INC.
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STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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February 2, 1982
(commencement of
Three Months ended September 30, operations) to
1996 1997 September 30, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 145,518 $ 190,323 $ 10,924,060
Cash paid to suppliers and employees (440,000) (1,112,103) (28,063,856)
Interest received - 69,655 377,359
Acquisition expenses paid - - (429,620)
Royalties, research funding, license fees received 100,419 100,000 2,572,987
Other receipts 126,939 82 12,135,423
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Net cash provided by (used in) operating activities (67,124) (752,043) (2,483,647)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - - 15,097
Issuance of note receivable - - (230,000)
Purchase of property and equipment - - (758,546)
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Net cash (used in) investing activities - - (973,449)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock and
additional contributions 354 - 9,943,519
Principal payments on notes payable - - (870,238)
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Net cash provided by financing activities 354 - 9,073,281
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Net change in cash and cash equivalents (66,770) (752,043) 5,616,185
CASH AND CASH EQUIVALENTS, beginning of period 359,600 6,368,228 -
--------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 292,830 $ 5,616,185 $ 5,616,185
========= ========= ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (241,139) $ (68,340) $ 1,292,786
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,124 1,976 737,748
Issuance of warrants - - 65,000
Deferred income taxes - (77,163) 807,927
Loss on disposal of property and equipment - 4,552 8,531
Increase in reserve for note receivable - - 230,000
Amortization of deferred financing costs and other - - 195,179
Decrease (increase) in assets:
Accounts receivable (74,019) 12,257 (43,052)
Inventory 2,747 1,115 (3,163)
Prepaid expenses - - (475)
Notes and other long-term receivables - (90,440) (9,355,270)
Security deposit - - (23,938)
Intangible assets - - (37,105)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,134,163 (576,638) 1,455,564
Other current and non-current liabilities (890,000) (24,362) 2,186,618
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ (67,124) $ (752,043) $ (2,483,650)
========= ========== ===========
See accompanying notes to financial statements
5
CISTRON BIOTECHNOLOGY, INC.
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NOTES TO FINANCIAL STATEMENTS
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(Unaudited)
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A. BASIS OF PRESENTATION
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The financial statements for the periods ended September 30, 1997 and
1996 have been prepared without audit and, in the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to fairly present the Company's financial position, results of
operations, and cash flows at September 30, 1997 and 1996 and for the
periods then ended have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997. The results of operations for the
periods ended September 30, 1997 and 1996 are not necessarily indicative
of the operating results for the full year.
B. OTHER INCOME
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During the three-month period ended September 30, 1997 and 1996, the
Company received non-refundable research and development funding of
$100,000 respectively representing the ninth and fifth of 10 consecutive
quarterly research and development payments of $100,000 which another
company has agreed to make to Cistron.
C. INCOME TAXES
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At September 30, 1997 the Company had available investment and research
and development tax credits of $372,000. A tax benefit of $63,338 was
recorded in the three-month period ended September 30, 1997 against the
net loss incurred.
The Company may be in an Alternative Minimum Tax (AMT) position for the
fiscal year principally due to the limitations placed on the utilization
of the Company's Federal Net Operating Loss (NOL) carryforwards; and,
will receive an AMT credit in future years for the amount of AMT paid.
D. ACCOUNTS RECEIVABLE
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Accounts receivable - other consists of amounts due in November 1997
(current) and amounts due in November 1998, 1999 and 2000 (long term)
pursuant to a litigation settlement agreement entered into in 1996.
Long term amounts have been discounted to reflect their present value.
E. CHANGES IN SHAREHOLDERS' EQUITY
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During the three-month period ended September 30, 1997, shareholders'
equity decreased by a net loss of $68,340.
6
F. EARNINGS PER SHARE CALCULATIONS
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The Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). The
Company is required to adopt FAS 128 for both interim and annual periods
ending after December 15, 1997. FAS 128 requires the Company to present
Basic Earnings Per Share which excludes dilution and Diluted Earnings
Per Share which includes potential dilution. The Company believes that
the adoption of FAS 128 will not have a material effect on the Company's
earnings per share calculations.
Item 2. Management's Discussion and Analysis of Results of
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Operations and Financial Condition
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The following discussion should be read in conjunction with and is
qualified in its entirety by the accompanying financial information and
notes thereto, and the financial information, notes thereto and
management's discussion and analysis of results of operations and financial
condition contained in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997.
Certain statements in this discussion and analysis constitute forward-
looking statements, are not historical facts, and involve risks and
uncertainties that could cause actual results to differ from those expected
and projected. Such risks and uncertainties include but are not limited
to: (i) general economic conditions; (ii) conditions specific to the
biotechnology industry; (iii) the Company's ability to develop or acquire
new technology or products through licensing, merger or acquisition and to
obtain regulatory approval to commercialize diagnostic or therapeutic
products; (iv) the effectiveness and ultimate market acceptance of any such
products; (v) limitations on third party reimbursements with respect to any
such products; and (vi) competition. The Company does not undertake to
update or revise any forward-looking statements contained herein whether as
a result of new information, future events or otherwise.
Results of Operations
- ---------------------
The Company sells its products to the research market and has not generated
significant revenues therefrom. None of its products have been submitted
to or received approval from the Food and Drug Administration for the sale
of such products to the diagnostic or therapeutic markets.
Three Months Ended September 30, 1997 and
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Three Months Ended September 30, 1996
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Sales were unchanged in the quarter ended September 30, 1997 versus the
same quarter of the prior year. In the quarter ended September 30, 1997,
higher sales of bulk cytokine assays were made offset by lower sales of
bulk proteins. This resulted in an increase in cost of sales versus the
prior year period.
During the periods ended September 30, 1997 and 1996, respectively, the
Company received non-refundable research and development funding of
$100,000, in each period representing the ninth and fifth, respectively, of
10 consecutive quarterly research and development payments of $100,000
which another company has agreed to make to Cistron.
7
Operating expenses increased $9,874 (2.2%) in the quarter ended September
30, 1997 as compared to the same quarter last year. Research and
development expenses increased $74,350 (308.9%) due to increased external
research funding of periodontal disease, vaccine adjuvant and IL-1
inhibition preclinical studies. Consulting expenses related to the
preparation of the periodontal disease program also increased.
Administrative and marketing expenses decreased $65,845 (17.1%) due to lower
legal and consulting expenses in the quarter ended September 30, 1997 than
in the same quarter of the prior year, in which higher legal and consulting
expenses related to litigation were incurred. Higher salary and insurance
expenses partially offset the decrease in legal and litigation related
consulting. In the quarter ended September 30, 1997, the Company also
recorded the initial cash fee of $50,000 and a charge of $65,000 for
non-cash compensation related to the issuance of 400,000 warrants to the
investment bankers retained by the Company in September 1997. Occupancy
expenses were essentially unchanged.
Interest income of $69,655 was earned on the investment of higher cash
balances. In addition, net interest income of $68,627 was recognized on
accounts receivable other and other non-current liabilities to reflect
the increase in their present value.
The Company had an operating loss of $269,960 in the quarter and expects
research expenditures to increase. There can be no assurance that its
operations will reach profitability.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1997, the Company had current assets of $8,662,875
including cash and cash equivalents of $5,616,185 and had current
liabilities of $998,271. Cash used in the quarter ended September 30, 1997
was largely due to the payment of amounts due to the Institutions pursuant
to litigation settlements. These amounts were shown as accrued payables at
June 30, 1997.
Management believes that it will have sufficient assets to fund the
Company's current programs and plans through fiscal 1998 and beyond. The
Company will be expending funds for research, including the initiation of
periodontal disease clinical studies, throughout fiscal 1998 and fiscal
1999. Management believes that it will have sufficient assets to fund the
Company's current programs through this period.
8
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
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On October 10, 1997, judgment was entered in favor of the Company
in the Circuit Court of Fairfax County (Virginia) against
Rebuild, LLC and Henry Grausz. The judgment was for $230,000
loan principal plus interest and attorneys' fees. It is not
known if Rebuild or Dr. Grausz has the ability to repay this
amount.
Item 2. Changes in Securities
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a. Not applicable
b. Not applicable
c. On September 5, 1997, the Company issued to BlueStone
Capital Partners, LP, investment bankers, a warrant to
purchase 400,000 shares of the Company's common stock, at
$.25 per share, the closing bid price on September 5, 1997,
as additional compensation. The warrant was acquired by
BlueStone for investment, the warrant was appropriately
legended and the issuance of the warrant was exempt from
the registration requirements of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereunder.
Item 3. Defaults upon Senior Securities
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
Item 5. Other Information
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Not applicable.
Item 6. Exhibits and Reports on Form 8-K
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a. Exhibit.
27. Financial Data Schedule
b. Reports on Form 8-K. Not applicable.
9
SIGNATURES
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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.
Date: November 10, 1997 CISTRON BIOTECHNOLOGY, INC.
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(Registrant)
BRUCE C. GALTON
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Bruce C. Galton
Acting Chairman & CEO,
President, Chief Operating
and Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
10