==================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
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
===========================
CISTRON BIOTECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
===========================
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 February 10,
1999 was 24,317,020 shares of Common Stock, .01 par value.
Page 1 of 14 pages
2
CISTRON BIOTECHNOLOGY, INC.
---------------------------
(A DEVELOPMENT STAGE COMPANY)
---------------------------
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of December 31, 1998 and June 30, 1998.......... 3
Statements of operations for the three months and six months ended
December 31, 1998 and 1997........................................ 4
Statements of cash flows for the six months ended
December 31, 1998 and 1997........................................ 6
Notes to financial statements..................................... 7
Item 2. Management's discussion and analysis of results of
operations and financial condition................................. 9
PART II - OTHER INFORMATION .............................................. 13
Item 1. Legal Proceedings.......................................... 13
Item 2. Changes in Securities...................................... 13
Item 3. Defaults upon Senior Securities............................ 13
Item 4. Submission of Matters to a Vote of Security Holders........ 13
Item 5. Other Information.......................................... 13
Item 6. Exhibits and Report on Form 8-K............................ 13
Signatures......................................................... 14
- 2 -
3
CISTRON BIOTECHNOLOGY, INC.
---------------------------
BALANCE SHEETS
--------------
June 30, December 31,
ASSETS 1998 1998
- ------ ------------ ------------
CURRENT ASSETS: (unaudited)
Cash and equivalents $ 5,832,031 $ 8,592,213
Accounts receivable-trade 101,859 36,422
Accounts receivable-other 2,940,673 2,865,501
Inventories 3,635 793
Taxes receivable 329,024 329,024
Notes receivable $230,000; reserve $230,000 - -
---------- ----------
TOTAL CURRENT ASSETS 9,207,222 11,823,953
ACCOUNTS RECEIVABLE - OTHER - Long Term 3,670,221 906,510
---------- ----------
PROPERTY AND EQUIPMENT:
Machinery and equipment 502,908 502,908
Furniture and fixtures 147,113 147,113
Leasehold improvements 77,674 77,674
---------- ----------
727,695 727,695
Less: Accumulated depreciation 701,477 703,995
---------- ----------
26,218 23,700
---------- ----------
SECURITY DEPOSITS 23,938 23,938
---------- ----------
PATENTS, Net of accumulated amortization
of $14,536 and $15,861, respectively 22,569 21,244
---------- ----------
DEFERRED TAXES 49,313 49,313
---------- ----------
TOTAL ASSETS $ 12,999,481 $ 12,848,658
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 114,894 $ 66,320
Taxes payable 348,898 165,548
Deferred revenues - 69,750
Other current liabilities 691,058 673,387
---------- ----------
TOTAL CURRENT LIABILITIES 1,154,850 975,005
---------- ----------
Other non-current liabilities 902,174 253,818
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
authorized; issued and outstanding 26,930,187 shares
and 28,263,520 respectively 269,302 282,635
Additional paid-in capital 8,683,680 9,600,347
Earnings accumulated during the development stage 2,384,125 2,131,503
Treasury stock 3,946,500 shares at cost (394,650) (394,650)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 10,942,457 11,619,835
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,999,481 $ 12,848,658
========== ==========
See accompanying notes to financial statements
- 3 -
4
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
-----------
February 2, 1982
(commencement of
Three Months ended December 31, operations) to
1997 1998 December 31, 1998
----------------------------------------------------
Sales...................................... $ 90,545 $ 51,210 $ 9,619,765
Cost of sales.............................. 66,445 75,884 4,272,847
---------- ---------- ----------
Gross profit............................. 24,100 (24,674) 5,346,918
---------- ---------- ----------
Other income:
Litigation settlements................... - - 14,684,206
License fees and funded research......... 100,000 69,750 4,180,899
---------- ---------- ----------
Expenses:
Research and development................. 271,487 51,981 8,698,988
Administrative and marketing............. 283,324 248,662 11,681,393
Occupancy................................ 47,756 48,582 2,569,760
---------- ---------- ----------
Total expenses............................. 602,567 349,225 22,950,141
---------- ---------- ----------
Operating income/(loss).................. (478,467) (304,149) 1,261,882
Interest income/(expense) - net............ 146,901 65,593 1,082,868
Other expense.............................. - - 59,895
Amortization of deferred financing costs... - - 173,079
Acquisition expense........................ - - 429,620
---------- ---------- ----------
Income/(loss) before income taxes
and extraordinary credit................. (331,566) (238,556) 1,682,156
Income tax provision (benefit)............. (88,626) (90,651) 1,312,968
---------- ---------- ----------
Income/(loss) before extraordinary credit.. (242,940) (147,905) 369,188
Extraordinary credit - benefit of tax loss
carryforward............................. - - 262,838
---------- ---------- ----------
Net income/(loss)........................ $ (242,940) $ (147,905) $ 632,026
========== ========== ==========
Net loss per share......................... $ (0.01) $ (0.01)
========== ==========
Weighted average shares outstanding........ 26,903,167 24,317,020
========== ==========
Net income/(loss) per share -
assuming dilution........................ $ (0.01) $ (0.01)
========== ==========
Weighted average shares outstanding -
assuming dilution........................ 26,903,167 24,317,020
========== ==========
See accompanying notes to financial statements
- 4 -
5
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
---------
February 2, 1982
(commencement of
Six Months ended December 31, operations to
1997 1998 December 31, 1998
---------------------------------------------------
Sales...................................... $ 265,835 $ 204,780 $ 9,619,765
Cost of sales.............................. 147,760 155,518 4,272,847
---------- ---------- ----------
Gross profit............................. 118,075 49,262 5,346,918
Other revenues: ---------- ---------- ----------
Litigation settlement, net............... - - 14,684,206
License fee and funded research.......... 200,000 69,750 4,180,899
---------- ---------- ----------
Expenses:
Research and development................. 369,907 155,642 8,698,988
Administrative and marketing............. 602,717 474,331 11,681,393
Occupancy................................ 93,878 98,795 2,569,760
---------- ---------- ----------
Total expenses............................. 1,066,502 728,768 22,950,141
---------- ---------- ----------
Operating income (loss).................. (748,427) (609,756) 1,261,882
Interest income/(expense) - net............ 285,183 202,304 1,082,868
Other expense.............................. - - 59,895
Amortization of deferred financing costs... - - 173,079
Acquisition expense........................ - - 429,620
---------- ---------- ----------
(Income)/loss before income taxes
and extraordinary credit................. (463,244) (407,452) 1,682,156
Income tax provision (benefit)............. (151,964) (154,831) 1,312,968
---------- ---------- ----------
Income/(loss) before extraordinary credit.. (311,280) (252,621) 369,188
Extraordinary credit - benefit of tax loss
carryforward.......................... - - 262,838
---------- ---------- ----------
Net income/(loss)........................ $ (311,280) $ (252,621) $ 632,026
========== ========== ==========
Net loss per share......................... $ (0.01) $ (0.01)
========== ==========
Weighted average shares outstanding........ 26,894,079 24,317,020
========== ==========
Net loss per share - assuming dilution..... $ (0.01) $ (0.01)
========== ==========
Weighted average shares outstanding -
assuming dilution........................ 26,894,079 24,317,020
========== ==========
See accompanying notes to financial statements
- 5 -
6
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
February 2, 1982
(commencement of
Six Months ended December 31, operations) to
1997 1998 December 31, 1998
----------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 296,511 $ 274,580 $ 11,529,274
Cash paid to suppliers and employees (2,674,802) (1,726,880) (32,845,650)
Interest received 147,929 139,304 745,361
Acquisition expenses paid - - (429,620)
Royalties, research funding, license fees received 200,000 139,500 2,817,487
Other receipts 3,000,426 3,003,678 18,141,226
---------- ---------- -----------
Net cash provided by (used in) operating activities 970,064 1,830,182 (41,922)
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - - 15,097
Issuance of note receivable - - (230,000)
Purchase of property and equipment (3,926) - (762,472)
---------- ---------- -----------
Net cash (used in) investing activities (3,926) - (977,375)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock and
additional contributions 2,879 930,000 10,876,398
Principal payments on notes payable - - (870,238)
Purchase of treasury stock (394,650) - (394,650)
---------- ---------- -----------
Net cash provided by financing activities (391,771) 930,000 9,611,510
---------- ---------- -----------
Net change in cash and cash equivalents 574,367 2,760,182 8,592,213
CASH AND CASH EQUIVALENTS, beginning of period 6,368,228 5,832,031 -
---------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 6,942,595 $ 8,592,213 $ 8,592,213
========== ========== ===========
RECONCILIATION OF NET INCOME (LOSS) TO
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (311,280) $ (252,621) $ 632,026
Adjustments to reconcile net income (loss) to net
cash provided used in operating activities:
Depreciation and amortization 3,377 3,843 746,708
Issue of warrants 65,000 - 65,000
Deferred income taxes (165,789) - (49,313)
Loss on disposal of property and equipment 4,552 - 8,531
Increase in reserve for note receivable - - 230,000
Amortization of deferred financing costs - - 195,179
Decrease (increase) in assets:
Accounts receivable 24,808 65,437 (36,422)
Inventory 1,889 2,842 (793)
Taxes receivable 475 - (329,024)
Notes and other receivables 2,819,120 2,838,883 (3,787,711)
Security deposit - - (23,938)
Intangible assets - - (37,105)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (810,714) (48,575) 1,531,335
Other current and non-current liabilities (661,374) (779,627) 813,605
---------- ---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES) $ 970,064 $ 1,830,182 $ (41,922)
========== ========== ============
See accompanying notes to financial statements
- 6 -
7
CISTRON BIOTECHNOLOGY, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
A. BASIS OF PRESENTATION
The financial statements for the three and six month periods ended
December 31, 1998 and 1997 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 December
31, 1998 and 1997 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, 1998. The results of operations for the
periods ended December 31, 1998 and 1997 are not necessarily indicative
of the operating results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
B. OTHER INCOME
During the three and six-month periods ended December 31, 1997, the
Company received non-refundable research and development funding of
$100,000 and $200,000, respectively, representing the last two of 10
consecutive quarterly research and development payments of $100,000
which another company had agreed to make to Cistron.
During the three-month period ended December 31, 1998, the Company
received $75,000 ($69,750 net of amounts due BlueStone Capital Partners,
LP ("BlueStone") of funded research under an agreement with Pasteur
Merieux Connaught ("PMC").
C. INCOME TAXES
Tax benefits of $88,626 and $90,651 were recorded in the three-month
periods ended December 31, 1997 and 1998, respectively, against the net
losses incurred. Tax benefits of $151,964 and $154,831 were recorded in
the six-month periods ended December 31, 1997 and 1998, respectively,
against the net losses incurred.
-7-
8
D. ACCOUNTS RECEIVABLE
Accounts receivable - other consists of amounts due in November 1999
(current) and amounts due in November 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
During the six-month period ended December 31, 1997, shareholders'
equity $638,050 due to net losses of $311,280, and due to the repurchase
of approximately 4 million shares of the Company's common stock that has
been recorded as treasury stock. During the six-month period ended
December 31, 1998, shareholders' equity increased $677,378 due to the
sale of 1,333,333 shares of common stock to Pasteur Merieux Serums &
Vaccins, S.A. ("PMS&V") for $1 million less $70,000 due to BlueStone on
the transaction offset, in part, by a net loss of $252,621.
F. EARNINGS PER SHARE CALCULATIONS
In February 1997, The Financial Accounting Standards Board issued
Statement of Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS") and became
effective for both interim and annual periods ending after December 15,
1997. All prior period EPS data has been restated to conform to the
provisions of SFAS No. 128. The following is a reconciliation of the
numerators and denominators used to calculate Earnings per Share:
Three Months Ended Six Months Ended
December 31, December 31,
1997 1998 1997 1998
-----------------------------------------------------------
Earnings per common share:
- -------------------------
Net income (loss) (numerator) $ (242,940) $ (147,905) $ (311,280) $ (252,621)
Weighted average shares
(denominator) 26,903,167 23,896,730 26,894,079 23,440,209
Income (loss) per share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
========== ========== ========== ==========
Earnings per common share -
assuming dilution:
- ---------------------------
Net income (loss) (numerator) $ (242,940) $ (147,905) $ (311,280) $ (252,621)
Weighted averageshares 26,903,167 23,896,730 26,894,079 23,440,209
Effect of dilutive options - - - -
========== ========== ========== ==========
Weighted average shares -
assuming dilution (denominator) 26,903,167 23,896,730 26,894,079 23,440,209
Income (loss) per share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
========== ========== ========== ==========
G. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, The Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". Both
standards became effective for the Company during the current year and
have been implemented by management. The impact of these new standards
on the Company's financial statements is immaterial.
- 8 -
9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
--------------------------------------------------
The following discussion should be read in conjunction with and is
qualified in its entirety by the accompanying financial information and
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, 1998.
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. The Company has entered into discussions
with another company regarding Cistron's IL-1 research product line.
Should these discussions result in an agreement, Cistron would grant the
other company an exclusive sublicense to produce and sell IL-1 antibodies
and assays and a non-exclusive sublicense to manufacture and sell IL-1
protein to the research market. If consummated, Cistron would cease
research market sales. If such agreement were successfully concluded,
Cistron would devote its efforts solely towards therapeutic and diagnostic
applications of the Company's technologies. There can be no assurance that
an agreement regarding the sublicense of the research product line will be
reached or as to the terms thereof. 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.
The Company believes it is a development stage enterprise because planned
principal operations have not yet commenced. The Company's planned
principal operations include the development of clinical and therapeutic
products for distribution through pharmaceutical and diagnostic companies.
This requires the approval of the Company's products by the Food and Drug
Administration ("FDA"). At December 31, 1998, none of the Company's
products had received such approval. In addition, the Company continues to
devote most of its efforts to activities such as research and development,
financial planning and developing markets which are typical activities for
a development stage enterprise. Specifically, the Company has expended
funds relating to the dental assay and vaccine adjuvant programs. With
respect to financial planning, from September 1997 to September 1998, the
Company engaged the services of BlueStone to act as Cistron's financial
advisor as to corporate strategic and financial initiatives. In October
1998, the Company engaged Genome Securities, Inc. to act in this capacity.
Accordingly, as the Company has not yet commenced principal operations and
is devoting most of its efforts to activities typical of a development
stage enterprise as outlined in Statement of Financial Accounting Standards
No.7, the Company believes that it continues to be in the development
stage.
- 9 -
10
Three Months Ended December 31, 1998 and Three Months Ended December 31, 1997
- -----------------------------------------------------------------------------
Sales decreased $39,335 (43.4%) in the quarter ended December 31, 1998
versus the same period of the prior year due to decreased sales of bulk
cytokine assay kit components and assay kits. While customers may vary,
Cistron's product sales are usually concentrated among a limited number of
customers. In the quarter ended December 31, 1997, two customers accounted
for approximately 70% of sales while in the quarter ended December 31,
1998, two customers accounted for approximately 45% of sales. Export sales
decreased $20,305 (43.4%) primarily due to decreased bulk assay kit
component sales. Domestic sales decreased $19,030 (43.5%) due primarily to
decreased assay kit sales.
Cost of sales increased $9,439 (14.2%) from the prior year's quarter
despite the lower sales volume, as the result if increased manufacturing
salary expense and the use of temporary help in manufacturing. Should the
Company reach agreement with another company to sublicense Cistron's
research product line, Cistron would cease manufacturing IL-1 research
products and manufacturing personnel would be transferred to research.
During the quarter ended December 31, 1997, the Company received
nonrefundable research and development funding of $100,000, representing
the last of 10 consecutive quarterly research and development payments of
$100,000 which another company had agreed to make to Cistron. During the
quarter ended December 31, 1998, the Company received nonrefundable
research funding of $150,000 under the collaboration agreement with PMC.
The funds represent the December 1998 and March 1999 quarters. The
December quarter amount was recorded, net of the amount due BlueStone, as
other income in the quarter. The amount received for the March 1999
quarter was recorded, net of fees due BlueStone, on the balance sheet as
deferred revenue.
Operating expenses decreased $253,342 (42.0%) in the quarter ended December
31, 1998 versus the same quarter of the prior year. Research and
development expenses decreased $219,506 (80.9%) due to lower external
research funding, lower research salary, lower research material expense
and lower consulting expenses. The lower external research funding and
consulting expenses is primarily due to spending in the prior fiscal year
associated with preclinical periodontal disease studies.
Administrative and marketing expenses decreased $34,662 (12.2%) due to
lower advertising and printing expenses, lower travel and entertainment and
lower legal expenses offset, in part, by higher consulting expenses.
Occupancy expenses were essentially unchanged.
Interest income of $71,224 was earned on the investment of higher cash
balances. In addition, net interest expense of $5,631 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 $304,149 in the quarter and there can
be no assurance that its operations will reach profitability.
- 10 -
11
Six Months Ended December 31, 1998 and Six Months Ended December 31, 1997
- -------------------------------------------------------------------------
Sales decreased $61,055 (23.0%) in the six months ended December 31, 1998
as compared to the same six-month period of the prior year due to decreased
sales of bulk cytokine assay components and assay kits offset, in part, by
increased sales of bulk cytokine proteins. While customers may vary,
Cistron product sales are usually a limited number of customers.
In the six months ended December 31, 1998, four customers accounted for
approximately 60% of sales while in the six months ended December 31, 1997,
four customers accounted for approximately 70% of sales. Export sales
decreased $56,840 (46.3%) in the period primarily due to decreased sales of
bulk cytokine assay components. Domestic sales decreased $4,215 (2.8%) due
primarily to lower cytokine protein sales.
Cost of sales increased $7,758 (5.3%) from the prior year's six-month
period, despite the lower sales volume, as the result of increased
manufacturing salary expense and the use of temporary help in
manufacturing. Should the Company reach agreement with another company to
sublicense Cistron's research product line, Cistron would cease
manufacturing IL-1 research products and manufacturing personnel would be
transferred to research.
During the six months ended December 31, 1997, the Company received
nonrefundable research and development of $200,000, representing the ninth
and tenth of 10 consecutive quarterly research and development payments of
$100,000 which another company had agreed to make to Cistron. During the
six months ended December 31, 1998, the Company received non-refundable
research funding of $150,000 under the collaboration agreement with PMC.
The funds represent the December 1998 and March 1999 quarters. The
December quarter amount was recorded, net of the amount due BlueStone, as
other income in the quarter. The amount received for the March 1999
quarter was recorded, net of fees due BlueStone, on the balance sheet as
deferred revenue.
Operating expenses decreased $337,734 (31.7%) in the six-month period ended
December 31, 1998 versus the same period of the prior year. Research and
development expenses decreased $214,265 (137.7%) due to lower external
research funding and due to lower research salary and consulting expenses.
The lower external research and lower consulting expenses are primarily due
to expenses incurred in the prior year related to preclinical periodontal
disease studies.
Administrative and marketing expenses decreased $128,386 (21.3%) due to
lower consulting expenses and lower travel and entertainment and lower
advertising and printing expenses. The lower consulting expenses were the
result of the fact that Cistron did not actively engage the services of
BlueStone. Occupancy expenses increased $4,917 (5.2%) due to increased
utility expenses.
Interest income of $139,304 was earned on the investment of higher cash
balances. In addition, net interest income of $63,000 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 $609,756 in the six-month period ended
December 31, 1998 and there can be no assurance that its operations will
reach profitability.
- 11 -
12
Liquidity and Capital Resources
- -------------------------------
At December 31, 1998, the Company had current assets of $11,823,953
including cash and cash equivalents of $8,592,213 and had current
liabilities of $975,005. Cash used in the six-month period ended December
31, 1998 was largely for operating expenses and payment of fees due the
Institutions and attorneys on the receipt of funds by Cistron under a
litigation settlement agreement and fees due BlueStone as the result of the
equity investment and research payments made by PMC to Cistron.
In September 1997, the Company engaged the services of BlueStone to act as
Cistron's financial advisor as to corporate strategic and financial
initiatives. The Company's agreement with BlueStone was not renewed at its
expiration in September 1998. In October 1998, Cistron engaged Genome
Securities, Inc., whose Chairman and CEO, Robert Naismith, Ph. D. is also a
member of the Company's Board of Directors, to perform these services. In
this regard, the Company has held exploratory discussions with several
biotechnology and pharmaceutical companies regarding possible strategic
alliances including joint ventures, mergers or the sale of the Company.
There can be no assurance that any of these discussions will result in any
agreements with the Company.
Management believes that it will have sufficient assets to fund the
Company's current programs and plans through fiscal 1999 and beyond.
Year 2000 Impact
- ----------------
The Company's computers are stand-alone PC's running Microsoft Windows 95
programs. Microsoft believes these programs to be Year 2000 (Y2K)
compatible. The volume of transactions processed via these programs can be
handled manually, if need be, to prevent any interruptions in order
processing. None of the manufacturing operations are dependent upon
computer systems. Additionally, the Company has requested and will record
Y2K compliance statements from our major customers and suppliers. Those
that have responded thus far have not indicated a Y2K problem. Currently,
management does not foresee any negative impact from the Y2K event upon
Cistron's business operations.
- 12 -
13
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
a. Not applicable
b. Not applicable
c. Not applicable
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibit.
27. Financial Data Schedule
b. Reports on Form 8-K. Not applicable.
- 13 -
14
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.
Date: February 10, 1999 CISTRON BIOTECHNOLOGY, INC.
(Registrant)
BRUCE C. GALTON
----------------------------
Bruce C. Galton
Chairman & CEO
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
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