-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CeZX8dJAJOUtmjDNroBd4AmDQbNc/m57Kp89xKKZiYvQ4Fo37SPYbs80LCXkfrit FgbO+vZd9unvMLCI2sLXjA== 0000946644-98-000005.txt : 19980817 0000946644-98-000005.hdr.sgml : 19980817 ACCESSION NUMBER: 0000946644-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEMISPHERX BIOPHARMA INC CENTRAL INDEX KEY: 0000946644 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 520845822 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13441 FILM NUMBER: 98687581 BUSINESS ADDRESS: STREET 1: 1617 JFK BLVD STREET 2: ONE PENN CENTER CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159880080 MAIL ADDRESS: STREET 1: 1617 JFK BLVD STREET 2: ONE PENN CENTER CITY: PHILADELPHIA STATE: PA ZIP: 19103 10-Q 1 FORM 10-Q HEMISPHERX BIOPHARMA, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1998 Commission File Number: 0-27072 HEMISPHERx BIOPHARMA, INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 52-0845822 - ------------------------------ ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1617 JFK Boulevard, Suite 660, Philadelphia, PA 19103 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (215) 988-0080 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /X/ Yes / / No 21,708,751 shares of common stock issued and outstanding as of June 30, 1998. 2 PART I - FINANCIAL INFORMATION ITEM 1: Financial Statements HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) December 31, June 30, 1997 1998 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 8,965,714 $ 6,556,764 Short Term Investments 1,001,410 1,000,470 Accounts Receivable 32,408 62,300 Prepaid expenses and other current assets 66,618 59,472 ----------- ---------- Total current assets 10,066,150 7,679,006 Property and equipment, net 70,637 99,221 Patent and trademark rights, net 1,387,523 1,332,743 Security deposits 18,323 19,453 ----------- ---------- Total assets $11,542,633 $ 9,130,423 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 465,166 $ 792,462 Accrued expenses 332,045 254,433 ----------- ---------- Total current liabilities 797,211 1,046,895 Commitments and contingencies Stockholders' equity: Preferred stock 37 24 Common stock 21,042 21,708 Additional paid-in capital 65,255,571 65,737,264 Deferred compensation (137,132) (221,268) Accumulated other comprehensive (loss) (2,183) (3,123) Accumulated deficit (54,391,913) (57,451,077) ----------- ---------- Total stockholders' equity 10,745,422 8,083,528 ----------- ---------- Total liabilities and stockholders' equity $11,542,633 $ 9,130,423 =========== ==========
See accompanying notes to condensed consolidated financial statements. 3 HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) For the Three months ended June 30 -------------------------- 1997 1998 ---------- ---------- Revenues: Cost recovery - clinical treatment programs $ 31,618 $ 95,939 ---------- ---------- Total revenues 31,618 95,939 ---------- ---------- Costs and expenses: Research and development 670,678 1,087,916 General and administrative 502,887 704,501 ---------- ---------- Total cost and expenses 1,173,565 1,792,417 Interest income 44,524 117,903 ---------- ---------- Net loss $(1,097,423) $(1,578,575) ========== ========== Basic loss per share $ (0.07) $ (0.07) ========== ========== Weighted average shares outstanding 16,416,637 21,374,685 ========== ========== Diluted loss per share $ (0.07) $ (0.07) ========== ========== Weighted average common and dilutive equivalent shares outstanding 16,416,637 21,374,685 ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) For the Six months ended June 30 -------------------------- 1997 1998 ---------- ---------- Revenues: Cost recovery - clinical treatment programs $ 61,825 $ 181,850 ---------- ---------- Total revenues 61,825 181,850 ---------- ---------- Costs and expenses: Research and development 1,326,933 2,007,524 General and administrative 1,026,403 1,489,160 Preferred stock conversion expense 1,227,864 - ---------- ---------- Total cost and expenses 3,581,200 3,496,684 Interest income 110,718 255,670 ---------- ---------- Net loss $(3,408,657) $(3,059,164) ========== ========== Basic loss per share $ (0.21) $ (0.14) ========== ========== Weighted average shares outstanding 16,315,246 21,216,076 ========== ========== Diluted loss per share $ (0.21) $ (0.14) ========== ========== Weighted average common and dilutive equivalent shares outstanding 16,315,246 21,216,076 ========== ==========
See accompanying notes to condensed consolidated financial statements. 5 HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY(DEFICIT) For the six months ended June 30, 1998
Preferred Common Preferred C/S .001 Additional Deferred Accumulated Accumulated Total stock stock stock Par value paid-in Compensation other deficit stockholders, shares shares capital comprehensive equity ------------ ------------ --------- --------- ------------ ---------- loss ---------- (deficit) ---------- ------- Balance 12/31/97 3,650 21,042,606 $37 $21,042 $65,255,571 $(137,132) $(2,183) $(54,391,913) $10,745,422 Common stock issued 16,145 16 56,492 56,508 Preferred stock converted (1,300) 650,000 (13) 650 (637) - Unrealized loss (940) (940) Repayment of lock up (79,587) (79,587) Stock compensation 505,425 (84,136) 421,289 Net loss (3,059,164) (3,059,164) -------- ---------- ------ ------- ----------- ---------- -------- ------------- ---------- Balance 6/30/98 2,350 21,708,751 $24 $21,708 $65,737,264 $(221,268) $(3,123) $(57,451,077) $8,083,528 ======== ========== ====== ======= =========== ========== ======== ============= ==========
See accompanying notes to condensed consolidated financial statements. 6 HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Six months ended June 30 ------------------------- 1997 1998 ----------- ---------- Cash flows from operating activities: Net loss $(3,408,657) $(3,059,164) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of property and equipment 13,740 15,885 Amortization of patents rights 59,833 111,139 Write-off of patent rights 46,451 55,551 Preferred stock conversion expense 1,227,864 - Stock option compensation expense - 421,289 Changes in assets and liabilities: Accounts receivable ( 30,750) (29,486) Prepaid expenses and other current assets ( 1,004) 6,740 Accounts payable ( 31,583) 327,296 Accrued expenses ( 79,910) 24,287 Security deposits 10,000 (1,130) --------- --------- Net cash used in operating activities (2,194,016) (2,127,593) --------- --------- Cash flows from investing activities: Purchase of property and equipment (5,661) (44,469) Additions to patent rights ( 89,772) (111,910) --------- --------- Net cash used in investing activities ( 95,433) (156,379) --------- --------- Cash flows from financing activities: Proceeds from issuance of preferred stock 4,834,923 - Preferred stock redeemed (5,000,000) - Common stock issued 1,282 56,508 Stock issuance cost - (181,486) --------- --------- Net cash used in financing activities (163,795) (124,978) --------- --------- Net decrease in cash and cash equivalents (2,453,244) (2,408,950) Cash and cash equivalents at beginning of period 5,279,429 8,965,714 --------- --------- Cash and cash equivalents at end of period $2,826,185 $6,556,764 ========= =========
See accompanying notes to condensed consolidated financial statements. 7 HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Hemispherx BioPharma, Inc. (the "Company"), a Delaware corporation and all its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's interim consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such consolidated financial statements have been included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a full year. The interim consolidated financial statements and notes thereto are presented as permitted by the Securities and Exchange Commission (SEC), and do not contain certain information which will be included in the Company's annual consolidated financial statements and notes thereto. These consolidated financial statements should be read in conjunction with the Company's 1997 consolidated financial statements included in the Company's Form 10K statement filed with the SEC on March 27, 1998. NOTE 2: SERIES E CONVERTIBLE PREFERRED STOCK On March 7, 1997, the Company used the services of an investment banking firm to privately place $5 million of Series E Convertible Preferred Stock. The proceeds from placement were used to retire the $5 million balance of Series D Convertible Stock issued on July 3, 1996. In conjunction with this transaction, the Company issued 200,000 shares of common stock with a value of $6.00 per share in exchange for a lock-up in the shares through November 30, 1997. Consequently, the Company incurred a $1.2 million charge which had no effect on the total stockholders' equity as it was offset by an increase in additional paid-in capital. On January 15, 1998, the Company paid GFL Advantage Fund ("GFL") $181,486 and issued 100,000 registered shares as settlement of the amount due GFL for the difference between the actual selling price and the $6.00 value. 8 NOTE 3: STOCK COMPENSATION: The Company recorded stock/warrant compensation expense of $204,481 during the quarter ended June 30, 1998 for warrants granted to purchase Common stock to non-employees of the Company. This expense had no effect on shareholder equity as it was offset by an increase in additional paid-in capital. In the first six months of 1998, the Company granted 1,266,000 stock warrants to certain employees in recognition of services performed and services to be performed. These warrants are exercisable at prices ranging from $3 - $6 per share. The Company applies APB Opinion No. 25 in accounting for stock- based compensation of its employees and, accordingly,no compensation expense has been recognized for stock purchase rights issued to employees in the financial statements. NOTE 4: NEW ACCOUNTING PRONOUNCEMENTS: In February, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share", which was effective for financial statements issued for periods ending after December 15, 1997, including interim periods. This statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. This Statement simplifies the standards for computing earnings per share previously found in APB Opinion NO. 15, "Earnings Per Share," and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. This Statement requires restatement of all prior-period EPS data presented. The adoption of this Statement by the Company in 1997 did not have any impact on the Company's EPS disclosure, as the Company's stock options and warrants are anti-dilutive and are excluded from the denominator of loss per share; thus, loss per common share is equal to basic loss per share as computed under SFAS No. 128. In March 1998, The Accounting Standards Executive Committee (ACSEC) issued Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP is effective for financial statements for fiscal years beginning after December 15, 1998. In April 1998, the Accounting Standards Executive Committee (ACSEC) issued Statement of Position (SOP) 98-5, "Reporting as the costs of Start-Up Activities." This SOP provides guidance on the financial reporting of start-up 9 costs and organization costs. The SOP requires costs related to start-up activities and organization costs be expensed as incurred. The statement is effective for financial statements for fiscal year beginning after December 15, 1998. The Company plans to adopt the SOP's in connection with the preparations of the December 31, 1999 consolidated financial statements as permitted by SOP 98-1 and 98-5. The adoption of these standards will not have a material impact on consolidated results, financial conditions, or long-term liquidity. NOTE 5: COMPREHENSIVE INCOME: In January, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("Statement 130"), Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net loss or stockholders' equity. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The term "other comprehensive income" refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. The components of comprehensive (loss): For the three months For the six months June 30, June 30, June 30, June 30, 1997 1998 1997 1998 --------- -------- -------- --------- Net Income (loss) $(1,097,423) $(1,578,575) $(3,408,657) $(3,059,164) Unrealized gain (loss) on short term investments (940) (940) ---------- ---------- ---------- ---------- Total comprehensive $(1,097,423) $(1,579,515) $(3,408,657) $(3,060,104) ========== ========== ========== ========== The components of accumulated other comprehensive income are as follows: December 31, 1997 June 30, 1998 ----------------- ------------- Unrealized gain in marketable securities $ 2,183 $ 3,123 -------- -------- Other comprehensive income $ 2,183 $ 3,123 ======== ======== 10 ITEM 2: Managements Discussion and Analysis of Financial Condition and Results of Operations. GENERAL Hemispherx Biopharma, Inc. (the "Company") has developed a large body of knowledge in the development and testing of therapeutic products based on nucleic acid technologies. Ampligen, its lead compound, a type of double- stranded RNA, is in advanced human clinical development for various therapeutic indications. It has been clinically evaluated as an investigational drug in over 350 patients for different therapeutic indications. The clinical profile that is emerging from these studies is that the drug has broad-spectrum antiviral and immune modulating activity and is generally well tolerated. The Company is currently conducting Phase III human clinical trials for the therapeutic treatment of Myalgic Encephalomyelitis also known as Chronic Fatigue Syndrome (ME/CFS). Ampligen is also under investigation for the treatment of HIV infection. Other disease indications, including hepatitis B and certain cancers are targeted for further investigation. Clinical trials conducted in the early 1990's indicate that Ampligen may have potential in the treatment of metastatic renal cell cancer and malignant melanoma. The Company plans to explore the possibility of partnerships for the further development in the treatment of these diseases. The Company expects to continue its research and clinical efforts for the next several years with significant benefit accruing as a result of certain revenues expected from various cost recovery treatment programs, notably in Canada, Belgium and the United States. However, the Company may continue to incur losses over the next several years due to clinical costs incurred in the continued development of Ampligen for commercial application. Possible losses may fluctuate from quarter to quarter as a result of differences in the timing of significant expenses incurred and receipt of licensing fees and/or cost recovery treatment revenues in Belgium, Canada and the United States. The Company is also pursuing similar programs in other countries, especially within the European Union where resources have been substantially increased with respect to pursuing regulatory approvals. As part of its research and development activities, the Company has entered into various collaborative and sponsored research agreements with researchers, universities and government agencies. The Company believes that these agreements provide the Company with access to physicians and scientists with expertise in the fields of clinical medicine, virology, molecular biology, biochemistry, immunology and cellular biology. 11 The Company's policy is to file or license patent applications on a worldwide basis to protect technology, inventories and improvements that are considered important to the development of its business. Over the years, Hemispherx has secured a significant patent estate consisting of 15 issued U.S. patents and over 250 derivative international filings; Nine additional U.S. patent filings are pending along with their international counterparts. The Company has also in-licensed, on an exclusive base, a large set of additional issued patents and patent applications from Temple University ("the Oragen technology"). These patents primarily cover the Company's technology platform that involves modifications of nucleic acid polymers to achieve specifically configured base pairs, or to alter nucleic acid structures to trigger dormant components of the body's own immune/antiviral system and/or to inhibit selectively certain human viruses such as hepatitis viruses, herpes viruses, etc. Product Development In the second quarter of 1998, the Company initiated the recruitment of clinical investigators and ME/CFS patients to participate in the Phase III confirmatory placebo- controlled clinical study of Ampligen in the treatment of persons suffering from ME/CFS. The Company has a target of eventually enrolling 230 patients with the severely debilitating form of ME/CFS. As of August 3, 1998, the Company had begun enrollment of subjects into the pre-clinical or baseline phase of the study. The Company has entered research agreements with LabCorp., a subsidiary of Laboratory Corporation of American (NYSE:LH), Workwell Corporation, and Medical Graphics Corporation (NASD:MGCC) to provide high quality diagnostic data during the Phase III study. LabCorp will carry out laboratory diagnostic tests on samples sent from clinical trial sites to its location in Raritan, NJ. Workwell will monitor treadmill oxygen consumption at each clinical trial center using systems manufactured by Medical Graphics Corporation. Testing for a specific biochemical marker (RNase L) will be done by R.E.D. Laboratories in Brussels. These clinical research partners will help provide scientifically valid and quality assured Phase III data. In the first quarter of 1998, the FDA authorized expansion of the ME/CFS cost recovery treatment program. This open treatment protocol with cost recovery has been ongoing since mid-1997 under the auspices of the FDA. Under this protocol, the enrolled patients pay for the Ampligen administered which totals about $7,200 for a 24 week treatment course. Fifty (50) patients with severe forms of CFS/ME have been authorized for treatment. At the end of June, 1998, 11 patients were being treated in a Belgium ME/CFS cost recovery treatment program. This program was authorized by the Belgium authorities 12 and initiated in 1994. Since inception, over 60 patients have been treated in this program, which is similar to the cost recovery treatment program now in process in the United States. Manufacturing In 1994, the Company entered into an agreement with Bioclones, Ltd ("Bioclones"), a subsidiary of South African Breweries, Ltd., with respect to the co-development of various RNA drugs, including Ampligen ("Bioclones Agreement"). Pursuant to the Bioclones Agreement, Ribotech, Ltd. ("Ribotech"), was formed in 1994 to produce the raw materials for Ampligen. Ribotech is jointly owned by Bioclones (75.1%) and the Company (24.9%). Ribotech, Ltd. has produced production runs of raw materials that were accepted for use in the manufacture of Ampligen. The Drug Master File (DMF) has been submitted to the FDA. Ribotech presently has the capacity to produce the materials required to treat up to some 2,000 patients. Plans for a new production plant are being developed. The planned facility will have the capacity to produce the materials needed to treat up to 50,000 patients. A liquid formulation process for Ampligen was initiated at Cook Imaging, a major U.S.-based facility for preparing large volume parenteral drug products under GMP ("Good Manufacturing Practice"). This liquid process is more efficient and allows for greater volume manufacturing production needed to meet projected requirements. Results with the product liquid format to date have been encouraging with respect to product stability and ease of handling. The liquid formulation format also eliminates the need for a major pharmacy function nearby the clinical treatment site. Distribution/Marketing In February 1998, the Company entered into an agreement with Kimberly Home Health Care, Inc. d/b/a Olsten Health Services ("Olsten"). This agreement appoints Olsten as a distributor of products to U.S. patients enrolled in the ME/CFS cost recovery protocol (AMP 511). Olsten agreed to purchase Ampligen inventory for treating these patients. In addition, Olsten agreed to provide initially up to $500,000 of support for other clinical program efforts including identification of medical and economic benefits to patients receiving Ampligen. The Company agreed to compensate Olsten for certain services in connection with conducting clinical trials. 13 Olsten has the capability to deliver treatment and services to chronic disease patients including infusion services, home nursing and other medical services through a national network of more than 500 locations. The Company feels that Olsten's participation completes the product delivery process and uniquely meets the needs of ME/CFS patients. Presently, Olsten has similar partnerships in other disease categories with Glaxo Wellcome (pulmonary hypertension), Biogen (multiple sclerosis), Rhone-Poulenc Rorer (ALS), and Biotechnology General (AIDS related wasting disorder). Europe Incorporation papers have been filed in Belgium to incorporate a wholly owned subsidiary named Hemispherx Biopharma Europe NV/S.A. This European subsidiary will be based in Antwerp to serve the needs of the Company in pursuing ME/CFS clinical tests, related clinical treatments and new drug marketing approval in Belgium and other European (European Union) countries. The Company has engaged the services of several senior executives and leading medical experts to pursue this task. The Company expects to file final drug marketing approval documents in the European Union during 1998. Recent Developments Manufacturing received, tested and released for use in the production of Ampligen 4,000,000 milligrams of raw material from Pharmacia Biotech. Pharmacia was formerly a division of Upjohn and has been a long time supplier of raw material used in the production of Ampligen. The Company completed six (6) months of accelerated and long term stability studies on the liquid formulation product produced by Cook Imaging. These stability studies on liquid formulated product are required by the FDA. Management initiated efforts to identify and locate additional liquid formulation capacity. The Company anticipates that additional production capacity will be needed in the future. Subsequent to June 30, 1998, the Company has received over five million dollars from various warrantholders electing to convert warrants and options into common stock. 14 RESULTS OF OPERATIONS Six months ended June 30, 1998 versus six months ended June 30, 1997 - -------------------------------------------------------------------- The Company reported a net loss of $3,059,164 for the six months ended June30, 1998 versus a net loss of $3,408,657 for the same period in 1997. Several factors, including increased revenues, contributed to the $349,493 reduction in losses in 1998. The six months ended June 30, 1997 results include a one time non-cash preferred stock conversion expense of $1,227,864 primarily due to the buy back and settlement of the Series D Preferred Stock. Common stock compensation expense of $421,289 was incurred in the six months ended June 30, 1998. Revenues were up $120,025 (increased 194%) for the six months ending June 30, 1998 over the comparable period in 1997 due to the increased enrollment of patients in the Cost Recovery Clinical Treatment Program's being conducted in Belgium, Canada and the United States for the treatment of ME/CFS. Research and development costs increased $680,591 in the six months ended June 30, 1998. This increase reflects the expenses associated with increased drug production efforts and the increase in personnel necessary to support the forthcoming clinical programs in the United States and European Union including the anticipated filings for drug marketing approvals. General and administrative expenses in the six months ending June 30, 1998 increased by $462,757. This is due primarily to a common stock compensation expense of $421,289 which is included in general and administrative expense. This expense relates to the grant of warrants to non-employees for services performed. Interest income increased $144,952 in the six months ended June 30, 1998 compared to the same period in 1997 due to higher cash and cash equivalents available for short term investments. Three months ended June 30, 1998 versus three months ended June 30, 1997 - ------------------------------------------------------------------------ The Company reported a net loss of $1,578,575 for the three months ended June 30, 1998 versus a net loss of $1,097,423 for the same period in 1997. Several factors contributed to the $481,152 increase in losses in 1998. 15 Revenues were up $64,321 (approximately 200%) for the three months ending June 30, 1998 over the comparable period for 1997 due to the increased enrollment of patients in the Cost Recovery Clinical Treatment Program's being conducted in Belgium, Canada and the United States for the treatment of ME/CFS. Research and development costs increased $417,238 in the second quarter. This increase reflects the expenses associated with increased drug production efforts and the increase in personnel necessary to support the forthcoming clinical programs in the United States and preparation for drug marketing approvals in Europe. General and administrative expenses in the three months ending June 30, 1998 increased by $201,614. This was due primarily to common stock compensation expense of $204,481 which is included in general and administrative expense. This expense relates to the grant of warrants to non-employees for services performed. Interest income increased $73,379 in the three months ended June 30, 1998 due to higher cash and cash equivalents available for short term investments. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents at June 30, 1998 was $6,556,764 compared to $8,965,714 at December 31, 1997, reflecting a net cash use of $2,408,950 to support operations in the first six months of 1998. In addition to the cash and cash equivalents of $6,556,764 at June 30, 1998, the Company had $1,000,470 in short term investments. These funds with an aggregate total of $7,557,234 reflect the residual of the $9.4 million net proceeds of two private placements of equity in October 1997. Revenues from the ME/CFS clinical treatment cost recovery programs underway in the United States, Canada and Belgium produced $181,850 in funds for the first six months of 1998. Interest income on the short term investment of surplus funds produced $255,670. Funds from shareholders exercising warrants to purchase common stock totaled $56,508 in the first six months of 1998. Subsequent to June 30, 1998, the Company has received $5,478,497 in funds from various warrant holders converting warrants and options into common stock. This conversion activity is expected to continue if the public trading price of the Company's stock holds or exceeds its present level. In March, 1997, the Company used the services of an investment banking firm to privately place 5,000 shares of Series E Convertible Preferred Stock for $5,000,000. The proceeds from this placement were used to retire the balance of Series D 16 Convertible Stock issued in July of 1996. As a result of this transaction in 1997, the Company incurred a $1.2 million stock conversion cost; however, this had no effect on the net equity of the Company as it was offset by an increase in additional paid-in capital. The holders of Series E Convertible Preferred Stock shall receive cumulative dividends when and if declared by the board of directors at the rate of $60 per share. Holders of Series E Convertible Preferred Stock upon surrender of the certificates shall have the right to convert the Series E Preferred into fully paid and non-assessable share of Common Stock. As of June 30, 1998, holders of 2,650 shares of Series E Preferred Stock had converted. Because of the Company's long-term capital requirements, it may seek to access the public equity market whenever conditions are favorable, even if it does not have an immediate need for additional capital at that time. Any additional funding may result in significant dilution and could involve the issuance of securities with rights which are senior to those of existing stockholders. The Company may also need additional funding earlier than anticipated, and the Company's cash requirements in general may vary materially from those now planned, for reasons including, but not limited to, changes in the Company's research and development programs, clinical trials, competitive and technological advances, the regulatory rocess, and higher than anticipated expenses and lower than anticipated revenues rom certain of the Company's clinical trials for which cost recovery from participants as been approved. The Company recognizes the need to ensure that its operations will not be adversely mpacted by the Year 2000 hardware and software issues. The Company intends to confirm its compliance regarding Year 2000 issues for both internal and external information systems by the end of 1998. This process will entail communicating with significant suppliers, financial institutions, insurance companies and other arties that provide significant services to the Company. Expenditures required to make the Company Year 2000 compliant will be expensed as incurred and are not expected to be material to the Company's consolidated financial position or results of operations. 17 PART II - OTHER INFORMATION ITEM 1: Legal Proceedings None ITEM 2: Changes in Securities In February, 1998, the Company filed a Registration Statement with the Securities nd Exchange Commission (SEC) to register the common stock placed in the September 997 private placements. The statement included common stock underlying certain stock purchase warrants with registration rights. In October, 1997, the Company's shares of common stock and Class A warrants were listed with the American Stock Exchange and will trade under the symbols HEB and HEBW respectively. Accordingly, the shares were delisted from the Nasdaq SmallCap Market. ITEM 3: Defaults in Senior Securities None ITEM 4: Submission of Matters to a Vote of Security Holders None ITEM 5:Other Information None ITEM 6: Exhibits and Reports on Form 8K Reports on Form 8K - None 18 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. HEMISPHERx BIOPHARMA, INC. /S/ William A. Carter --------------------------- Date: August 13, 1998 William A. Carter, M.D. Chief Executive Officer & President /S/ Robert E. Peterson -------------------------- Date: August 13, 1998 Robert E. Peterson Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1998 JUN-30-1998 6,555,764 1,000,470 0 0 0 7,679,006 746,336 (647,115) 9,130,423 1,046,895 0 0 24 21,708 8,061,796 9,130,423 0 437,520 0 3,496,684 0 0 0 0 0 (3,059,164) 0 0 0 (3,059,164) (.14) (.14)
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