----------------------------------
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 September 30, 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 October 29,
1999 was 20,178,948 shares of Common Stock, .01 par value.
Page 1 of 12 pages
2
CISTRON BIOTECHNOLOGY, INC.
---------------------------
(A DEVELOPMENT STAGE COMPANY)
---------------------------
INDEX
-----
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of September 30, 1999 and June 30, 1999.... 3
Statements of operations for the three months ended
September 30, 1999 and 1998.................................. 4
Statements of cash flows for the three months ended
September 30, 1999 and 1998.................................. 5
Notes to financial statements................................ 6
Item 2. Management's discussion and analysis of results of
operations and financial condition........................... 7
Item 3. Quantitative and Qualitative Disclosures about Market
Risk......................................................... 10
PART II - OTHER INFORMATION............................................. 11
Item 5. Other Information..................................... 11
Item 6. Exhibits and Report on Form 8-K....................... 11
Signatures.................................................... 12
-2-
3
CISTRON BIOTECHNOLOGY, INC.
---------------------------
BALANCE SHEETS
--------------
June 30, September 30,
ASSETS 1999 1999
------------ -------------
CURRENT ASSETS: (unaudited)
Cash and equivalents $ 8,760,916 $ 7,311,430
Accounts receivable-trade 28,279 5,940
Accounts receivable-other 2,942,361 2,980,791
Inventories 1,023 -
Taxes receivable 369,557 103,617
Notes receivable $230,000; reserve $230,000 - -
---------- ----------
TOTAL CURRENT ASSETS 12,102,136 10,401,778
ACCOUNTS RECEIVABLE - OTHER - Long-term 931,440 943,905
PROPERTY AND EQUIPMENT:
Machinery and equipment 507,557 507,557
Furniture and fixtures 147,113 147,113
Leasehold improvements 77,674 77,674
---------- ----------
732,344 732,344
Less: Accumulated depreciation 706,980 708,472
---------- ----------
25,364 23,872
SECURITY DEPOSITS 23,938 22,963
PATENTS, Net of accumulated amortization
of $14,536 and $15,198, respectively 19,919 19,257
---------- ----------
TOTAL ASSETS $ 13,102,797 $ 11,411,775
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 390,386 $ 190,235
Other current liabilities 775,484 796,102
---------- ----------
TOTAL CURRENT LIABILITIES 1,165,870 986,337
Deferred revenue 69,750 -
Other non-current liabilities 270,796 279,285
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value:
50,000,000 shares authorized;
29,683,854 shares issued in each period 296,839 296,839
Additional paid-in capital 9,865,036 9,865,036
Earnings accumulated during the development stage 2,106,961 1,920,433
Treasury stock: 3,946,500 and 9,504,906 shares at cost (394,650) (1,658,350)
Note receivable for shares of stock (277,805) (277,805)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 11,596,381 10,146,153
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,102,797 $ 11,411,775
========== ==========
See accompanying notes to financial statements.
-3-
4
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
February 2, 1982
(commencement of
Three months ended September 30, operations) to
1998 1999 September 30, 1999
-------------------------------- ------------------
Sales...................................... $ 153,570 $ 51,310 $ 9,803,047
Cost of sales.............................. 79,634 41,781 4,371,758
----------- ---------- ----------
Gross profit......................... 73,936 9,529 5,431,289
Other income:
Litigation settlements................... - - 14,684,206
License fees and funded research......... - 101,687 5,140,336
Expenses: -
Research and development................. 103,661 74,302 9,069,087
Administrative and marketing............. 225,669 249,629 12,440,333
Occupancy................................ 50,213 59,658 2,725,233
Employee severance....................... - - 369,762
---------- ---------- ----------
Total expenses............................. 379,543 383,589 24,604,415
---------- ---------- ----------
Operating income (loss)............. (305,607) (272,373) 651,416
Interest income/(expense) - net............ 136,711 86,269 1,346,205
Other expense.............................. - - (59,895)
Amortization of deferred financing costs... - - (173,079)
Acquisition expense........................ - - (429,620)
---------- ---------- ----------
Income (loss) before income taxes
and extraordinary credit................. (168,896) (186,104) 1,335,027
Income tax provision (benefit)............. (64,180) 50 1,176,536
---------- ---------- ----------
Income/(loss) before extraordinary credit.. (104,716) (186,154) 158,491
Extraordinary credit - benefit of tax loss
carryforward............................. - - 262,838
---------- ---------- ----------
Net income/(loss)................... $ (104,716) $ (186,154) $ 421,329
========== ========== ==========
Earnings (loss) per share.................. $ - $ (0.01)
========== ==========
Weighted average shares outstanding........ 22,983,687 20,662,288
========== ==========
Earnings (loss) per share
assuming dilution......................... $ - $ (0.01)
========== ==========
Weighted average shares outstanding
assuming dilution......................... 22,983,687 20,662,288
========== ==========
See accompanying notes to financial statements
-4-
5
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
---------
February 2, 1982
(commencement of
Three months ended September 30, operations) to
1998 1999 September 30, 1999
---------------------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 199,319 $ 73,580 $ 11,745,917
Cash paid to suppliers and employees (504,529) (642,445) (34,547,937)
Interest received 68,080 84,029 1,003,456
Acquisition expenses paid - - (429,620)
Royalties, research funding, license fees received - 31,937 3,754,529
Other receipts 2,708 267,113 18,418,212
----------- ---------- -----------
Net cash provided by (used in) operating activities (234,422) (185,786) (55,443)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - - 15,097
Issuance of note receivable - - (230,000)
Purchase of property and equipment - - (767,121)
Net cash (used in) investing activities - - (982,024)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock and
additional contributions - - 10,877,485
Principal payments on notes payable - - (870,238)
Purchase of treasury stock - (1,263,700) (1,658,350)
----------- ---------- -----------
Net cash provided by financing activities - (1,263,700) 8,348,897
----------- ---------- -----------
Net change in cash and cash equivalents (234,422) (1,449,486) 7,311,430
CASH AND CASH EQUIVALENTS, beginning of period 5,832,031 8,760,916 -
----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,597,609 $ 7,311,430 $ 7,311,430
=========== ========== ===========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (104,716) $ (186,154) $ 421,329
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,921 1,782 752,801
Issuance of warrants - - 65,000
Loss on disposal of property and equipment - - 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 43,354 22,339 (5,940)
Inventory 1,087 1,023 -
Taxes receivable - 265,940 (103,617)
Notes and other long-term receivables (90,444) (50,895) (3,940,396)
Security deposit - 975 (22,963)
Intangible assets - - (37,105)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (107,437) (200,153) 2,053,989
Other current and non-current liabilities 21,813 (40,643) 327,749
----------- ---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ (234,422) $ (185,786) $ (55,443)
=========== ========== ===========
See accompanying notes to financial statements
-5-
6
CISTRON BIOTECHNOLOGY, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
---------
A. BASIS OF PRESENTATION
---------------------
The financial statements for the periods ended September 30, 1999 and
1998 have been prepared without audit and, in the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the Company's financial position, results of
operations, and cash flows at September 30, 1999 and 1998 or 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. Certain amounts in prior year
financial statements have been reclassified to conform to current year
presentation.
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, 1999. The
results of operations for the periods ended September 30, 1999 and 1998
are not necessarily indicative of the operating results for the full
year.
B. OTHER INCOME
------------
Other income includes sales related royalties and $75,000 per quarter
under a three year program from a subsidiary of Rhone-Poulenc to fund
the Company's vaccine adjuvant development program.
C. INCOME TAXES
------------
Although tax benefits were recorded against the net losses incurred
in periods ending on or before June 30, 1999, such benefits are no longer
available for periods commencing thereafter.
D. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable - other consists of amounts due in November 1999
(current) and in November 2000 (long-term) pursuant to a litigation
settlement agreement entered into in 1996. These amounts have been
discounted to reflect their present value.
E. CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------
During the three-month period ended September 30, 1998, shareholders'
equity decreased due to a net loss of $104,716. During the three-month
period ended September 30, 1999, shareholders' equity decreased due to a
net loss of $186,154 and to the repurchase, for $1,263,700, of 5,558,406
shares of the Company's Common Stock for treasury.
-6-
7
F. EARNINGS PER SHARE CALCULATIONS
-------------------------------
The following is a summary of the numerators and denominators used
to calculate Earnings per Share:
Three months ended
September 30,
1998 1999
-------------------------------
Earnings per common share:
- -------------------------
Net income (loss) (numerator) $ (104,716) $ (186,154)
Weighted average shares (denominator) 22,983,687 20,662,288
Earnings (loss) per share $ - $ (0.01)
========== ==========
Earnings per common share -
Assuming dilution:
- ---------------------------
Net income (loss) (numerator) $ (104,716) $ (186,154)
Weighted average shares (denominator) 22,983,687 20,662,288
Effect of dilutive options - -
========== ==========
Weighted average shares -
Assuming dilution (denominator) 22,983,687 20,662,288
Earnings (loss) per share $ - $ (0.01)
========== ==========
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, 1999.
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.
-7-
8
Results of Operations
- ---------------------
The Company has sold its products to the research market and has not
generated significant revenues therefrom. None of its products has been
submitted to or received approval from the Food and Drug Administration for
the sale of such product 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 September 30, 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 its vaccine
adjuvant program. With respect to financial planning since September 1998,
the Company has engaged the services of Genome Securities, Inc. ("Genome"),
whose Chairman and CEO, Robert Naismith, Ph. D. is also a member of the
Company's Board of Directors, to act as Cistron's financial advisor as to
corporate strategic and financial initiatives. 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.
Further, the Company during 1999 reached an agreement with a former
customer granting them an exclusive license to produce and sell IL-1
antibodies and assays and a non-exclusive sublicense to sell IL-1 protein
to the research market. Effective October 1999, the Company is no longer
selling products.
The Company intends to outsource all of its manufacturing and research
and development efforts and to move from its current facility by December 31,
1999. The Company reached an agreement with its landlord to terminate,
effective October 31, 1999, the lease on its office and production space
and has further arranged with the new tenant to temporarily share office
space in the formerly leased facility. The lease change coincided with an
employee reduction in force and all but two of the Company's employees have
been terminated. The Company anticipates that it will relocate to a small
office complex where it can oversee its research and development programs
and pursue its strategic objectives.
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 the Company will be successful in consummating
a merger or entering into a partnership agreement. In such event, the Company
may consider a partial or full liquidation of the Company, though no such
decision has been made at this time. Management believes that it will have
sufficient assets to fund the Company's current programs and plans through
fiscal 2000 and beyond.
-8-
9
Three Months Ended September 30, 1999 and
Three Months Ended September 30, 1998
- -----------------------------------------
Sales decreased $102,260 (67%) in the quarter ended September 30, 1999
versus the same period of the prior year due to the Company's decision to
withdraw from direct production and sale of its IL-1 assays. In the
quarter ended September 30, 1998, two customers accounted for approximately
66% of sales while in the quarter ended September 30, 1999, sales to
individual customers were not of any significance.
Cost of sales decreased $37,853 (48%) from the prior year due to the
lower sales volume offset by the dis-economies of smaller scale production.
Operating expenses increased $4,046 (1%) in the quarter ended
September 30, 1999 versus the same quarter of the prior year reflecting higher
administrative expenses offset by lower R&D expenses. Research and
development expenses decreased $29,359 (28%) due primarily to the timing of
payments for external research funding of vaccine adjuvant studies.
Administrative and marketing expenses increased $23,960 (11%)
primarily due to higher legal and consulting expenses partially offset by
decreases in employee salaries and benefits in the quarter ended September
30, 1999 as compared to the same quarter of the prior year. Occupancy
expenses increased $9,445 (19 %) as the result of higher utility expenses
incurred in the quarter ended September 30, 1999 than in the same quarter of
the previous year.
Interest income of $84,029 was earned on the Company's investment in
cash equivalent items. In addition, net interest income of $1,501 was
recognized on accounts receivable-other and other non-current liabilities
to reflect the increase in their present value. Finally, interest income
of $739 was earned on a tax receivable.
The Company had an operating loss of $186,154 in the quarter and there
can be no assurance that its operations will reach profitability.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1999, the Company had current assets of $10,401,778
including cash and cash equivalents of $7,311,430 and had current
liabilities of $986,337. Cash was increased in the current quarter by the
collection of taxes receivable in the amount of $267,113.
Cash was used in the quarter ended September 30, 1999 for the purchase of
5,558,406 shares of Company stock for treasury and for operating expenses.
There were no capital expenditure commitments outstanding at September 30,
1999.
Under the terms of the settlement agreement with Immunex, the Company
has received $17 million and Immunex is required to pay the Company
$3 million in Fiscal 2000 and $1 million in Fiscal 2001. From the gross
settlement proceeds, the Company has recorded, as other income, an aggregate
$14.3 million, net of amounts owed to counsel and certain health and research
institutions, and discounted to reflect the present value of amounts to be
received in future periods. Of the remaining $4 million in payments, a net
$2.8 million is due to the Company.
-9-
10
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 the Company will be successful in consummating a
merger or entering into a partnership agreement. In such event, the Company
may consider a partial or full liquidation of the Company, though no such
decision has been made at this time. Management believes that it will have
sufficient assets to fund the Company's current programs and plans through
fiscal 2000 and beyond.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The table below presents, as of the end of the prior fiscal year, the
carrying values and estimated fair values of the Company's financial
instruments, none of which has been entered into for trading purposes. The
estimated fair values were determined based upon the terms of the various
instruments.
June 30, 1999
--------------------------
Carrying Estimated
Description value fair value
- ------------------------------------- ----------- -----------
Cash and cash equivalents $ 8,760,916 $ 8,760,916
Accounts receivable - trade 28,279 28,279
Accounts receivable - other current 2,942,361 2,942,361
Accounts receivable - other long-term 931,440 826,415
Other current liabilities 775,484 775,484
Other non-current liabilities 270,796 231,396
-10-
11
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
-----------------
In October 1999, the Company extended its engagement of Genome,
under the same terms and conditions, on a month-to-month basis.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibit.
27. Financial Data Schedule
b. Reports on Form 8-K
On July 15, 1999, the Company filed a Form 8-K reporting the
following transaction under Item 5:
On July 8, 1999, the Company purchased an aggregate of 5,558,406
shares of the Company's common stock, $.01 par value per share. 5,058,406
shares were purchased from Dr. Harvey Wm. Glasser under a purchase
agreement between the Company and Dr. Glasser dated as of June 21, 1999,
which Dr. Glasser had previously acquired from the Bankruptcy Estate of Dr.
Henry Grausz, a former director and former executive officer of the Company
and one of its founders. The purchase price for the shares was $1,150,000
or $0.2274 per share. The remaining 500,000 shares of its common stock
were purchased from the Bankruptcy Estate of Dr. Grausz for a purchase
price of $113,700 or $0.2274 per share under a purchase agreement dated as
of June 30, 1999. The 5,558,406 shares of Common Stock purchased by the
Company from Dr. Glasser and the Bankruptcy Estate of Dr. Grausz are
treated as treasury stock.
_________________________
-11-
12
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: November 15, 1999 CISTRON BIOTECHNOLOGY, INC.
---------------------------
(Registrant)
/s/FRANKLIN J. IRIS
-------------------
Franklin J. Iris
Chairman & CEO,
Chief Financial Officer
(Principal Executive,
Financial and Accounting Officer)
-12-