----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
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 March 31, 1999
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 May 10, 1999 was
24,317,020 shares of Common Stock, .01 par value.
Page 1 of 16 pages
2
CISTRON BIOTECHNOLOGY, INC.
---------------------------
(A DEVELOPMENT STAGE COMPANY)
---------------------------
INDEX
-----
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of March 31, 1999 and June 30, 1998......... 3
Statements of operations for the three months and nine months
ended March 31, 1999 and 1998................................. 4
Statements of cash flows for the nine months ended
March 31, 1999 and 1998....................................... 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..................................... 14
Item 6. Exhibits and Report on Form 8-K....................... 15
Signatures.................................................... 16
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[CAPTION]
CISTRON BIOTECHNOLOGY,INC.
--------------------------
BALANCE SHEETS
--------------
June 30, March 31,
ASSETS 1998 1999
- ------ ------------ ------------
(unaudited)
CURRENT ASSETS:
Cash and equivalents $ 5,832,031 $ 9,006,038
Accounts receivable-trade 101,859 66,972
Accounts receivable-other 2,940,673 2,903,931
Inventories 3,635 1,399
Taxes receivable 329,024 329,024
Notes receivable $230,000; reserve $230,000 - -
---------- ----------
TOTAL CURRENT ASSETS 9,207,222 12,307,364
ACCOUNTS RECEIVABLE - OTHER - Long Term 3,670,221 918,975
---------- ----------
PROPERTY AND EQUIPMENT:
Machinery and equipment 502,908 505,054
Furniture and fixtures 147,113 147,113
Leasehold improvements 77,674 77,674
---------- ----------
727,695 729,841
Less: Accumulated depreciation 701,477 705,363
---------- ----------
26,218 24,478
---------- ----------
SECURITY DEPOSITS 23,938 23,938
---------- ----------
PATENTS, Net of accumulated amortization
of $14,536 and $16,523, respectively 22,569 20,582
---------- ----------
DEFERRED TAXES 49,313 49,313
---------- ----------
TOTAL ASSETS $ 12,999,481 $ 13,344,650
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 114,894 $ 85,373
Taxes payable 348,898 354,520
Other current liabilities 691,058 714,292
---------- ----------
TOTAL CURRENT LIABILITIES 1,154,850 1,154,185
---------- ----------
Other non-current liabilities 902,174 262,307
---------- ----------
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 2,439,826
Treasury stock 3,946,500 shares at cost (394,650) (394,650)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 10,942,457 11,928,158
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,999,481 $ 13,344,650
========== ==========
See accompanying notes to financial statements.
-3-
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CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
---------
February 2, 1982
(commencement of
Three Months ended March 31, operations) to
1998 1999 March 31, 1999
------------ ------------ ----------------
Sales....................................... $ 160,175 $ 86,857 $ 9,706,622
Cost of sales............................... 86,484 38,395 4,311,242
---------- ---------- ----------
Gross profit.............................. 73,691 48,462 5,395,380
---------- ---------- ----------
Other income:
Litigation settlements.................... - - 14,684,206
License fees and funded research.......... 5,000 783,000 4,963,899
---------- ---------- ----------
Expenses:
Research and development.................. 92,863 119,495 8,818,483
Administrative and marketing.............. 237,229 255,071 11,936,464
Occupancy................................. 52,787 47,913 2,617,673
---------- ---------- ----------
Total expenses.............................. 382,879 422,479 23,372,620
---------- ---------- ----------
Operating income/(loss)................... (304,188) 408,983 1,670,865
Interest income/(expense) - net............. 149,177 88,310 1,171,178
Other expense............................... - - 59,895
Amortization of deferred financing costs.... - - 173,079
Acquisition expense......................... - - 429,620
---------- ---------- ----------
Income/(loss) before income taxes
and extraordinary credit.................. (155,011) 497,293 2,179,449
Income tax provision (benefit).............. (82,973) 188,970 1,501,938
---------- ---------- ----------
Income/(loss) before extraordinary credit... (72,038) 308,323 677,511
Extraordinary credit - benefit of tax loss
carryforward.............................. - - 262,838
---------- ---------- ----------
Net income/(loss)......................... $ (72,038) $ 308,323 $ 940,349
========== ========== ==========
Net income/(loss) per share................. $ - $ 0.01
========== ==========
Weighted average shares outstanding......... 22,983,687 24,317,020
========== ==========
Net income/(loss) per share -
assuming dilution......................... $ - $ 0.01
========== ==========
Weighted average shares outstanding -
assuming dilution......................... 22,983,687 25,859,394
========== ==========
See accompanying notes to financial statements
-4-
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CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
---------
February 2, 1982
(commencement of
Nine Months ended March 31, operations) to
1998 1999 March 31, 1999
------------ ------------- ----------------
Sales....................................... $ 426,010 $ 291,637 $ 9,706,622
Cost of sales............................... 234,244 193,913 4,311,242
---------- ---------- ----------
Gross profit.............................. 191,766 97,724 5,395,380
---------- ---------- ----------
Other revenues:
Litigation settlement, net................ - - 14,684,206
License fee and funded research........... 205,000 852,750 4,963,899
---------- ---------- ----------
Expenses:
Research and development.................. 462,770 275,137 8,818,483
Administrative and marketing.............. 839,946 729,402 11,936,464
Occupancy................................. 146,665 146,708 2,617,673
---------- ---------- ---------
Total expenses.............................. 1,449,381 1,151,247 23,372,620
---------- ---------- ----------
Operating income (loss)................... (1,052,615) (200,773) 1,670,865
Interest income/(expense) - net............. 434,360 290,614 1,171,178
Other expense............................... - - 59,895
Amortization of deferred financing costs.... - - 173,079
Acquisition expense......................... - - 429,620
---------- ---------- ----------
Income (loss) before income taxes
and extraordinary credit................... (618,255) 89,841 2,179,449
Income tax provision (benefit).............. (234,937) 34,139 1,501,938
---------- ---------- ----------
Income/(loss) before extraordinary credit... (383,318) 55,702 677,511
---------- ---------- ----------
Extraordinary credit - benefit of tax loss
carryforward............................. - - 262,838
---------- ---------- ----------
Net income/(loss)......................... $ (383,318) $ 55,702 $ 940,349
========== ========== ==========
Net income/(loss) per share................. $ (0.01) $ -
========== ==========
Weighted average shares outstanding......... 25,609,643 23,728,212
========== ==========
Net income/(loss) per share -
assuming dilution.......................... $ (0.01) $ -
========== ==========
Weighted average shares outstanding -
assuming dilution......................... 25,609,643 26,647,226
========== ==========
See accompanying notes to financial statements
-5-
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CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
---------
February 2, 1982
(commencement of
Nine Months ended March 31, operations) to
1998 1999 March 31, 1999
------------- ------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 394,462 $ 333,425 $ 11,588,119
Cash paid to suppliers and employees (3,754,082) (2,206,669) (33,325,439)
Interest received 228,479 226,114 832,171
Acquisition expenses paid - - (429,620)
Royalties, research funding, license fees received 205,000 889,605 3,567,592
Other receipts 3,002,207 3,003,678 18,141,226
--------- --------- ----------
Net cash provided by operating activities 76,066 2,246,153 374,049
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - - 15,097
Issuance of note receivable - - (230,000)
Purchase of property and equipment (3,926) (2,146) (764,618)
--------- --------- ----------
Net cash used in investing activities (3,926) (2,146) (979,521)
--------- --------- ----------
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 (319,631) 3,174,007 9,006,038
CASH AND CASH EQUIVALENTS, beginning of period 6,368,228 5,832,031 -
--------- --------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 6,048,597 $ 9,006,038 $ 9,006,038
--------- --------- ----------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (383,318) $ 55,702 $ 940,349
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 5,233 5,872 748,737
Issue of warrants 65,000 - 65,000
Deferred income taxes (885,090) - (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 (40,680) 34,887 (66,972)
Inventory 534 2,236 (1,399)
Taxes receivable (8,525) - (329,024)
Notes and other receivables 2,728,680 2,787,988 (3,838,606)
Security deposit - - (23,938)
Intangible assets - - (37,105)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (798,412) (23,899) 1,556,011
Other current and non-current liabilities (611,908) (616,633) 976,599
--------- --------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 76,066 $ 2,246,153 $ 374,049
========= ========= ==========
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 nine month periods ended
March 31, 1999 and 1998 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 March 31,
1999 and 1998 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in
annual 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 March 31, 1999 and 1998 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 nine-month period ended March 31, 1998, the Company received
non-refundable research and development funding of $200,000,
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 and nine-month periods ended March 31, 1999, the
Company received $75,000 and $150,000, respectively, ($139,500 net of
amounts due BlueStone Capital Partners, LP ("BlueStone") of funded
research under an agreement with Pasteur Merieux Connaught ("PMC")).
Also during the three and nine-month periods ended March 31, 1999, the
Company received $750,000 ($713,250 net of fees due Genome Securities,
Inc.) from R&D Systems ("RDS") for the sale of the Company's IL-1
research product line.
C. INCOME TAXES
------------
Taxes of $188,970 and $34,139 were recorded in the three and nine-month
periods ended March 31, 1999, respectively.
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Tax benefits of $82,973 and $234,937 were recorded in the three and
nine-month periods ended March 31, 1998, respectively.
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 nine-month period ended March 31, 1998, shareholders' equity
decreased $710,089 due to net losses of $383,318, 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 nine-month
period ended March 31, 1999, shareholders' equity increased $985,701
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 and by net income of $55,702.
F. EARNINGS PER SHARE CALCULATIONS
-------------------------------
The following is a reconciliation of the numerators and denominators
used to calculate Earnings per Share:
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1999 1998 1999
-------------------------------------------------------
Earnings per common share:
-------------------------
Net income (loss)(numerator) $ (72,038) $ 308,323 $ (383,318) $ 55,702
Weighted average shares
(denominator) 22,983,687 24,317,020 25,609,643 23,728,212
Income (loss) per share $ - $ 0.01 $ (0.01) $ -
========== ========== ========== ==========
Earnings per common share -
assuming dilution:
------------------
Net income (loss)(numerator) $ (72,038) $ 308,323 $ (383,318) $ 55,702
Weighted average shares 22,983,687 24,317,020 25,609,643 23,728,212
Effect of dilutive options - 1,542,374 - 2,919,014
========== ========== ========== ==========
Weighted average shares -
assuming dilution (denominator) 22,983,687 25,859,394 25,609,643 26,647,226
Income (loss) per share $ - $ 0.01 $ (0.01) $ -
========== ========== ========== ==========
-8-
9
G. NEW ACCOUNTING PRONOUNCEMENT
----------------------------
In June 1998, The Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities."
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, thus it becomes effective for the
Company during the fiscal year ending June 30, 2000 and is applicable
to interim periods during that fiscal year. The implementation of
this standard will have no impact on the Company's financial
statements.
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 entered into an agreement with
RDS under which the Company granted RDS an exclusive license 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. The agreement was
reached in February 1999 and March was the last month in which the Company
sold IL-1 research market products. The Company has retained all rights to
therapeutic and diagnostic applications and will devote its efforts towards
research and development in these areas. 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 March 31, 1999, 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 antibody technology, wound healing and vaccine
-9-
10
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.
("Genome"), to act in this capacity. In March 1999, the Company extended its
engagement of Genome, under the same terms and conditions, through September
1999. 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.
Three Months Ended March 31, 1999 and Three Months Ended March 31, 1998
- -----------------------------------------------------------------------
Sales decreased $73,318 (45.8%) in the quarter ended March 31, 1999 versus
the same period of the prior year due to decreased sales of bulk cytokine
assay kit components offset, in part, by increased sales of bulk cytokine
proteins and cytokine assay kits. In February 1999, the Company reached
agreement with RDS under which the Company granted RDS an exclusive license
to produce and sell IL-1 antibodies and assays and a non-exclusive license
to manufacture and sell IL-1 protein to the research market. March 1999 was
the last month in which the Company sold IL-1 research market products. The
Company has retained all rights to therapeutic and diagnostic applications
and will devote its efforts towards research and development in these areas.
Cost of sales decreased $48,089 (55.6%) from the prior year's quarter due
to the lower sales volume and reclassification of some manufacturing
personnel to the research department.
During the quarter ended March 31, 1999, the Company recorded $69,750 of
nonrefundable research funding under the collaboration agreement with PMC
($75,000 net of fees due BlueStone Capital Partners) and $713,250 of
license fees from the agreement with RDS ($750,000 net of fees due Genome).
These amounts were recorded as other income in the quarter.
Operating expenses increased $39,600 (10.3%) in the quarter ended March 31,
1999 versus the same quarter of the prior year. Research expenditures
increased $26,632 (28.7%) due to higher research salary expenditures as the
result of reclassifying some manufacturing personnel to research and due to
increased external research funding in the quarter versus last year's
quarter.
Administrative and marketing expenses increased $17,842 (7.5%) due to
increased travel, audit and meeting expenses offset, in part, by lower
salary expense. Occupancy expenses decreased $4,874 (9.2%) due to lower
utility expenses.
Interest income of $86,810 was earned on the investment of higher cash
balances. In addition, net interest income of $1,500 was recognized on
accounts receivable - other and other non-current liabilities to reflect
the increase in their present value.
The Company had operating income of $408,983 in the quarter largely as the
result of an agreement with RDS and there can be no assurance that its
operations will maintain profitability.
-10-
11
Nine Months Ended March 31, 1999 and Nine Months Ended March 31, 1998
- ---------------------------------------------------------------------
Sales decreased $134,373 (31.5%) in the nine-month period ended March 31,
1999 versus the same period of the prior year due to decreased sales of
bulk cytokine assay kit components offset, in part, by increased sales of
bulk cytokine proteins. In February 1999, the Company reached agreement
with RDS under which the Company granted RDS an exclusive license to produce
and sell IL-1 antibodies and assays and a non-exclusive license to
manufacture and sell IL-1 protein to the research market. March 1999 was the
last month in which the Company sold IL-1 research market products. The
Company has retained all rights to therapeutic and diagnostic applications
and will devote its efforts towards research and development in these areas.
Cost of sales decreased $40,331 (17.2%) from the prior year's nine-month
period due to the lower sales volume and reclassification of some
manufacturing personnel to the research department.
During the nine months ended March 31, 1998, the Company received
nonrefundable research and development of $200,000, representing the last
two of 10 consecutive quarterly payments of $100,000 which another company
had agreed to make to Cistron. In the nine months ended March 31, 1999,
the Company received $139,500 of non-refundable research payments ($150,000
before fees due BlueStone Capital under the PMC agreement and $713,250 of
license fees ($750,000 before fees due Genome) under the agreement with RDS.
These amounts were recorded as other income in the nine-month period.
Operating expenses decreased $298,134 (20.6%) in the nine months ended
March 31, 1999 versus the same period of the prior year. Research expenses
decreased $187,633 (40.5%) due to lower research material and consulting
expenses and due to lower external research funding. The lower external
research and consulting expenses are primarily due to spending in the prior
year associated with preclinical periodontal disease studies.
Administrative and marketing expenses decreased $110,544 (13.2%) due to
lower salary, consulting, legal, and advertising and printing expenses
offset, in part, by higher audit expenses. Occupancy expenses were
unchanged.
Interest income of $226,114 was earned on the investment of higher cash
balances. In addition, $64,500 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 $200,773 in the nine-month period ended
March 31, 1999 and there can be no assurance that its operations will reach
profitability.
-11-
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Liquidity and Capital Resources
- -------------------------------
At March 31, 1999, the Company had current assets of $12,307,364 including
cash and cash equivalents of $9,006,038 and had current liabilities of
$1,154,185. Cash used in the nine-month period ended March 31, 1999 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 and Genome as the result of the equity
investment and research payments made by PMC to Cistron and the agreement
with RDS, respectively.
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 whose Chairman and CEO, Robert Naismith, Ph.D.
is also a member of the Company's Board of Directors, to perform these
services. In March 1999, the Company extended its engagement of Genome,
under the same terms and conditions, through September 1999. 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 receive
Y2K compliance statements from its 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
---------------------------------------------------
(a) On Tuesday, February 23, 1999, the shareholders of the
Company held their annual meeting in New York, NY. The holders of
20,956,689 shares of Common Stock were present in person or represented by
proxy and, accordingly, a quorum was present.
(b) Not Applicable
(c)
(i) The following persons were elected directors of the Company:
FOR WITHHELD
--- --------
Frank Iris 19,109,105 1,847,584
Thomas P. Carney, Ph.D. 19,109,305 1,847,384
Frank G. Stout 19,114,005 1,842,684
Bruce C. Galton 19,106,705 1,849,984
Robert Naismith, Ph.D. 19,108,705 1,847,984
===========================================================
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14
(ii) The ratification of the appointment of Deloitte & Touche LLP
as independent auditors of the Company for the year ending June 30, 1999 was
approved. The proposal received 20,522,585 votes in favor, 255,735 against,
65,919 abstained, and 0 broker non-votes.
(d) Not Applicable
Item 5. Other Information
-----------------
In March 1999, the Company extended its engagement of Genome
Securities, Inc. under the same terms and conditions, through September 1999.
On May 5, 1999, the Company announced that Bruce C. Galton and
Thomas P. Carney, Ph.D., had resigned as directors of the Company, that two
new directors, Isidore S. Edelman, M.D., the Company's co-founder, a former
board member, and a principal shareholder of the Company, and Jonathan
Rothschild, another shareholder of the Company, had been appointed to the
Board and that Franklin J. Iris, a director of the Company, had been
appointed Chairman of the Board of the Company and Chief Executive Officer-
designate. Mr. Galton resigned as Chairman and a director but has agreed
to remain as Chief Executive Officer until May 31, 1999. At that time, Mr.
Iris will become the Company's Chief Executive Officer.
Under Mr. Galton's Employment Agreement which had a term that
expired April 30, 1999, in the event the Company refused to renew his
Employment Agreement, then upon Mr. Galton's written request, the Company
had agreed to (i) pay Mr. Galton an amount equal to six months of his
current salary in equal monthly installments, commencing the month in which
the termination occurs, (ii) enter into a consulting contract with Mr.
Galton at full pay and benefits for a minimum of three months, and (iii)
lend Mr. Galton such amount as may be required to exercise any stock
options then exercisable by Mr. Galton to purchase shares of the Company's
Common Stock.
Mr. Galton and the Company entered into a Separation From Employment
Agreement under which the Employment Agreement was amended to increase the
severance payment to an amount equal to nine months base salary ($157,500),
payable in nine consecutive monthly installments commencing June 15, 1999,
and to eliminate any consulting agreement following the non-renewal of
employment. These payments are subject to acceleration to one lump sum
payment upon the first to occur of a sale or merger of the Company or its
liquidation or dissolution. The Employment Agreement was also modified to
modify the payment terms of the nonrecourse loan to require payment of the
note to be paid upon on the earliest of three (3) years following the date
of the loan, receipt of the proceeds of sale of shares securing the loan,
upon the merger or sale of the Company or the liquidation or dissolution of
the Company.
The Company also agreed to pay Mr. Galton additional severance
equal to three months base salary ($52,500), payable in three consecutive
monthly installments commencing June 15, 1999, in consideration for his
agreement to continue as Chief Executive Officer and Chief Financial
Officer during May 1999 and for his release of claims against the Company.
These payments are subject to acceleration to one lump sum payment upon the
first to occur of a sale or merger of the Company or its liquidation or
dissolution.
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Item 6. Exhibits and Reports on Form 8-K
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a. Exhibit.
10.20 License Agreement, dated February 16, 1999, between
Registrant and R&D Systems, Inc.
10.21 Separation from Employment Agreement, dated May 5, 1999,
between Registrant and Bruce C. Galton, including
Exhibit A thereto.
27. Financial Data Schedule
b. Reports on Form 8-K. Not applicable.
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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: May 10, 1999 CISTRON BIOTECHNOLOGY, INC.
(Registrant)
/s/BRUCE C. GALTON
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Bruce C. Galton
CEO and CFO
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