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 September 30, 2002
Commission File Number: 0-27072
HEMISPHERx BIOPHARMA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-0845822
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1617 JFK Boulevard, Suite 660, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
(215) 988-0080
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(Registrant's telephone number, including area code)
Not Applicable
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(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
32,080,270 shares of common stock issued and outstanding as of
October 31, 2002.
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PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, September 30,
2001 2002
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $3,107 $3,471
Short Term investments 5,310 837
Accounts receivable 8 12
Prepaid expenses and other current assets 381 98
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Total current assets 8,806 4,418
Property and equipment, net 246 177
Patent and trademark rights, net 1,025 1,087
Investments in unconsolidated affiliates 1,878 1,128
Other assets 80 53
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Total assets $12,035 $ 6,863
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 979 $ 703
Accrued expenses 293 231
----------- ----------
Total current liabilities 1,272 934
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Commitments and contingencies:
Minority interest in subsidiary (Note 5) - 946
Stockholders' equity:
Common stock 33 33
Additional paid-in capital 106,832 107,115
Accumulated other comprehensive income 17 17
Treasury stock - at cost (4,470) (4,520)
Accumulated deficit (91,649) (97,662)
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Total stockholders' equity 10,763 4,983
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Total liabilities and
stockholders' equity $12,035 $ 6,863
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See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
For the Three months ended
September 30,
--------------------------
(Unaudited)
2001 2002
---------- ----------
Revenues:
Cost recovery - clinical
treatment programs $ 76 $ 79
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Costs and expenses:
Research and development 1,589 1,194
General and administrative 673 767
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Total cost and expenses 2,262 1,961
Interest and other income 68 23
Equity in loss of unconsolidated affiliate (27) (32)
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Net loss $(2,145) $(1,891)
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Basic and diluted loss per share $ (.07) $ (.06)
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Basic and diluted weighted
average common shares outstanding 30,528,322 32,093,066
=========== ==========
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
For the Nine months ended
September 30,
--------------------------
(Unaudited)
2001 2002
---------- ----------
Revenues:
Cost recovery - clinical
treatment programs $ 304 $ 263
License fee income - 563
---------- ----------
304 826
Costs and expenses:
Research and development 4,765 3,732
General and administrative 2,677 2,447
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Total cost and expenses 7,442 6,179
Interest and other income 248 90
Loss on investment due to impairment - (678)
Equity in loss of unconsolidated
affiliate (78) (72)
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Net loss $(6,968) $(6,013)
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Basic and diluted loss per share $ (.23) $ (.19)
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Basic and diluted weighted
average common shares outstanding 30,202,583 32,083,957
========== ===========
See accompanying notes to condensed consolidated financial statements.
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HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Nine months ended
September 30,
(Unaudited)
2001 2002
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Cash flows from operating activities:
Net loss $(6,968) $(6,013)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of property and equipment 99 69
Amortization of patents rights 290 79
Write-off of patent rights 29 2
Stock option and warrant compensation and
service expense 673 132
Equity in loss of unconsolidated affiliates 77 72
Loss in investment due to impairment - 678
Changes in assets and liabilities:
Accounts receivable 47 (4)
Prepaid expenses and other current assets 259 283
Accounts payable (278) (190)
Accrued expenses 32 (62)
Other assets 3 27
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Net cash (used in) operating activities (5,737) (4,927)
-------- ----------
Cash flows from investing activities:
Additions to patent rights (100) (143)
Maturity of short term investments 4,613 5,310
Purchase of short term investments (1,220) (837)
Investments in unconsolidated affiliates (22) _
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Net cash provided by investing activities 3,271 4,330
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Cash flows from financing activities:
Proceeds from issuance of common stock 73 6
Proceeds from exercise of warrants 2,050 59
Proceeds from issuance of preferred stock
of subsidiary - 946
Purchase of treasury stock (519) (50)
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Net cash provided by financing activities 1,604 961
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Net (decrease) increase in cash and cash equivalents (862) 364
Cash and cash equivalents at beginning of period 3,721 3,107
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Cash and cash equivalents at end of period $2,859 $3,471
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Supplemental disclosures of cash flow information:
Issuances of common stock for accounts payable - $ 86
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See accompanying notes to condensed consolidated financial statements.
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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., a Delaware corporation and its
subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
In the opinion of management, all adjustments necessary for a fair
presentation of such consolidated financial statements have been includ-
ed. 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, and do
not contain certain information which will be included in our annual
consolidated financial statements and notes thereto.
These consolidated financial statements should be read in conjunction
with our year 2001 consolidated financial statements included in our
annual report on Form 10-K for the year ended December 31, 2001, as filed
with the SEC on April 9, 2002.
NOTE 2: STOCK COMPENSATION
This charge consists of the fair market value of warrants issued to
outside parties for services rendered on behalf of the Company. Stock
warrant compensation expense has no effect on shareholder equity as it is
offset by an increase in additional paid in capital.
The Company recorded $673,000 in non-cash stock compensation expense in
the first nine months of 2001. These charges were the result of actions
taken by the Board of Directors in 1) extending the expiration date of
certain non-public warrants which produced stock compensation expense of
$262,000 and 2) the granting of warrants to certain financial advisors
which produced stock compensation expense of $411,000. Approximately
$132,000 was booked in the first nine months of 2002 for stock
compensation expense for services provided.
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On August 14, 2002, the company 1)extended the expiration date of
1,722,000 stock warrants previously granted to certain Officers,
Directors and Employees that were scheduled to expire in the near term
with a weighted average exercise price of $3.59, 2)granted 1,200,000
stock warrants in connection with the extension of employment contracts
with two officers, and 3)granted 410,000 stock warrants to various
Officers, Directors and Employees. These stock warrants have an exercise
price of $2,00 per share and expire on August 13, 2008.
Note 3: INVESTMENTS
Investments in unconsolidated affiliates:
In 1998, the Company invested $1,074,000 for a 3.3% equity interest in
R.E.D. Laboratories ("R.E.D."). R.E.D. is a privately held biotechnology
company for the development of diagnostic markers for Chronic Fatigue
Syndrome and other chronic immune diseases. We have a research
collaboration agreement with R.E.D. to assist in this development.
R.E.D. is headquartered in Belgium. The investment was recorded at cost.
In June, 2002 we recorded a non-cash charge of $678,000 to operations
with respect to our investment in R.E.D. This charge was the result of
our determination that R.E.D.'s business had not yet evolved to the
point that our initial carrying value of this investment could be
supported. Our net investment as of September 30, 2002 was $396,000.
On May 11, 1999, the Company acquired a 15% interest in California
Institute of Molecular Medicine ("CIMM") for $375,000. On May 16, 2000,
the Company acquired an additional 15% interest in CIMM. The Company
currently has a total interest of 30% in CIMM for a total of $750,000.
CIMM is developing therapy for treating Hepatitis C virus. The
investment has been recorded by the equity method. During the fourth
quarter of 2001, the Company recorded a non-cash charge of $485,000 to
operations with respect to the Company investment in CIMM. This charge
was the result of the Company's determination that CIMM'S operation had
not yet evolved to the point where the Company's full carrying value of
this investment could be supported pursuant to the guidelines of APB
opinion No. 18. The $485,000 represents the unamortized balance of
goodwill included as part of the Company's investment. The Company's net
investment in CIMM was $32,234 at September 30, 2002.
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Other investments include an initial equity investment of $290,625 in
Chronix Biomedical ("Chronix"). Chronix focuses upon the development of
diagnostics for chronic diseases. This initial investment was made in
May 31, 2000 by the issuance of 50,000 shares of Hemispherx Biopharma,
Inc. common stock from the treasury. On October 12, 2000, the Company
issued an additional 50,000 shares of Hemispherx Biopharma, Inc. common
stock and on March 7, 2001 the Company issued 12,000 more shares of
Hemispherx Biopharma, Inc. common stock from the treasury to Chronix for
an aggregate equity investment of $700,000.
Note 4: LICENSING FEE INCOME
On March 20, 2002 our European Subsidiary Hemispherx Biopharma Europe,
S.A. ("Hemispherx, S.A.") entered into a Sales and Distribution
agreement with Laboratorios del Dr. Esteve S.A. ("Esteve"). Pursuant to
the terms of the Agreement, Esteve was granted the exclusive right to
market Ampligen in Spain, Portugal and Andorra for the treatment of
Myalgic Encephalitis/Chronic Fatigue Syndrome ("ME/CFS"). In addition to
other terms and other projected payments, Esteve paid an initial and non
refundable fee of 625,000 Euros (approximately $545,000) to Hemispherx
S.A. on April 24, 2002 as the first part of a series of milestone based
payments. In addition, Esteve acquired 1,000,000 Euros of Hemispherx
S.A.'s preferred equity certificates on May 23, 2002. (Refer to Note 5
of this report for the terms and conditions of these securities.)
Note 5: MINORITY SHAREHOLDER INTEREST
Laboratorios del Dr. Esteve S.A. purchased 1,000,000 Euros of Hemispherx
Biopharma Europe S.A.'s convertible preferred equity certificates on May
23, 2002. Currently these securities will pay a 7% dividend and will be
converted into 1.14% of the outstanding common stock of Hemispherx
Biopharma Europe S.A. upon completion of an initial public offering
("IPO") on a European stock exchange or before September 30, 2003,
whichever comes earlier. The terms and conditions of these securities are
being changed so that these preferred equity certificates will be
converted into the common stock of Hemispherx Biopharma, Inc. in the
event that a European IPO is not completed by September 30, 2003. The
conversion rate is 300 shares of Hemispherx Biopharma, Inc.'s common
shares for each 1000 Euro convertible preferred certificate.
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
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Certain statements in this Report on Form 10-Q ("Form 10-Q"), constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and the Private Securities Litigation
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Reform Act of 1995 (collectively, the "Reform Act"). Certain, but not
necessarily all, of such forward-looking statements can be identified by
the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors, including but not limited to, the risk factors discussed below,
which may cause the actual results, performance or achievements of
Hemispherx Biopharma, Inc. and its subsidiaries (collectively, the
"Company", "we or "us") to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements and other factors referenced in this Form 10-
Q. The Company does not undertake and specifically declines any
obligation to publicly release the results of any revisions which may be
made to any forward-looking statement to reflect events or circumstances
after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
Overview
Hemispherx Biopharma, Inc. is a biopharmaceutical Company that is
focusing on the development of Nucleic Acid compounds to enhance the
natural anti-viral defense systems of the human body. Using Nucleic Acid
technologies, the Company is developing therapeutic products for treating
viral diseases and certain cancers. The Company's lead compound,
Ampligen, is a new class of specifically configured ribonucleic acids
targeted to treat Myalgic Encephalomyelitis/Chronic Fatigue Syndrome
("ME/CFS"), HIV, Hepatitis B, Hepatitis C and certain cancers such as
renal cell carcinoma and metastic malignant melanoma.
The Company currently has four clinical trials underway in the United
States consisting of 1) an open label study of using Ampligen to treat
patients with severely debilitating ME/CFS. This study was approved by
the FDA as a cost recovery treatment program. Patients enrolled in this
program pay for costs related to treatment. 2) A Phase III multi-center,
double blind, randomized, placebo-controlled study of using Ampligen to
treat patients with severely debilitating ME/CFS. A total of 230 patients
will have participated in this study when enrollment is completed in the
near future. 3) A Phase IIb multi-center, randomized, controlled study of
the biological actions of using Ampligen as an adjunct in HIV patients
receiving HAART (cocktail of various anti-HIV drugs). 4) An open label,
prospective randomized, controlled study of using Ampligen to treat HIV
patients already controlling their HIV with HAART as a way to improve HIV
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control while off HAART during a Strategic Treatment Intervention
("STI"). STI is designed to help prevent serious drug toxicities that
develop in patients on HAART.
We have three domestic subsidiaries: BioPro Corp., BioAegean Corp. and
Core BioTech Corp., all of which are incorporated in Delaware. Our
foreign subsidiaries include Hemispherx BioPharma Europe, N.V./S.A. which
was established in Belgium in 1998 and Hemispherx Biopharma Europe, S.A.
which was established in Luxembourg during 2002. Our principal executive
offices are located at One Penn Center, 1617 JFK Boulevard, Philadelphia,
Pennsylvania 19103, and our telephone number is (215) 988-0080.
Risk Factors
The following cautionary statements identify important factors that
could cause our actual results to differ materially from those projected
in the forward-looking statements made in this Annual Report. Among the
key factors that have a direct bearing on our results of operations are:
No assurance of successful product development of Ampligen.
The development of Ampligen and our other products is subject to a
number of significant risks. Ampligen may be found to be ineffective or
to have adverse side effects, fail to receive necessary regulatory
clearances, be difficult to manufacture on a commercial scale, be
uneconomical to market or be precluded from commercialization by
proprietary rights of third parties. Our products are in various stages
of clinical and pre-clinical development and, require further clinical
studies and appropriate regulatory approval processes before any such
products can be marketed. We do not know when, or if ever, Ampligen or
our other products will be generally available for commercial sale for
any indication. Generally, only a small percentage of potential
therapeutic products are eventually approved by the FDA for commercial
sale.
Our drug and related technologies are investigational and subject to
regulatory approval
All of our drugs and associated technologies are investigational and
must receive prior regulatory approval by appropriate regulatory
authorities for general use and are currently legally available only
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through clinical trials with specified disorders. Our principal
development efforts are currently focused on Ampligen, which has not
been approved for commercial use. Ampligen and other proposed products
are subject to extensive regulation by numerous governmental authorities
in the U.S. and other countries, including, but not limited to, the Food
and Drug Administration in the U.S., the Health Protection Branch of
Canada, and the European Medicines Evaluation Agency in Europe.
Obtaining regulatory approvals is a rigorous and lengthy process and
requires the expenditure of substantial resources. In order to obtain
final regulatory approval of a new drug, we must demonstrate to the
satisfaction of the regulatory agency that the product is safe and
effective for its intended uses and that we are capable of manufacturing
the product to the applicable regulatory standards. We require
regulatory approval in order to market Ampligen or any other proposed
product and receive product revenues or royalties. We cannot assure you
that the drug will ultimately be demonstrated to be safe or efficacious.
In addition, while Ampligen is authorized for use in clinical trials in
the United States and other countries, we cannot assure you that
additional clinical trial approvals will be authorized in the United
States or in other countries in a timely fashion or at all, or that we
will complete these clinical trials. If Ampligen or one of our other
proposed products does not receive regulatory approval in the U.S. or
elsewhere, our operations will be materially adversely effected.
We may continue to incur substantial losses and our future profitability
is uncertain
We began operations in 1966 and last reported net profit from 1985
through 1987. Since 1987, we have incurred substantial operating losses,
as we pursued our Clinical trial effort and expanded our efforts in
Europe. As of September 30, 2002 our accumulated deficit was
approximately $97,662,000. We have not yet generated significant
revenues from our products and may incur substantial and increased
losses in the future. We cannot assure that we will ever achieve
significant revenues from product sales or become profitable. We
require, and will continue to require, the commitment of substantial
resources to develop our products. We cannot assure that our product
development efforts will be successfully completed or that required
regulatory approvals will be obtained or that any products will be
manufactured and marketed successfully, or profitably.
Additional financing requirements.
The development of our products will require the commitment of
substantial resources to conduct the time-consuming research,
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preclinical development, and clinical trials that are necessary to bring
pharmaceutical products to market. Based on our current operating plan,
we anticipate receipt of limited revenues and proceeds from the sale of
Ampligen under the Cost Recovery Treatment Clinical Programs and
holders of non-public warrants exercising warrants from time to time. We
believe these proceeds and the cash on hand will be sufficient to meet
our capital requirements through May 2003. The Company will need to
raise substantial additional funds through additional equity or debt
financing or from other sources in order to complete the necessary
clinical trials and the regulatory approval processes and begin
commercializing its products. There can be no assurances that our non-
public Warrants will be exercised or that we will raise any proceeds
from possible equity financing, which may have a material effect on our
ability to develop our products.
No regulatory agency has approved the full commercial sale of any of the
our products.
We cannot assure you that Ampligen or any of our other products being
developed will ultimately be demonstrated to be safe or efficacious.
While Ampligen is authorized for use in clinical trials in the United
States and other countries, we cannot assure you that additional
clinical trial approvals will be authorized in the United States, or in
other countries in a timely fashion or at all or that we will complete
these clinical trials. If Ampligen or one of our other products does
not receive regulatory approval in the United States or elsewhere, our
operations will be significantly affected.
We may not be profitable unless we can protect our patents and/or
receive approval for additional pending patents.
We need to acquire enforceable patents covering the use of Ampligen and
other products for a particular disease in order to obtain exclusive
rights for the commercial sale of Ampligen for such disease. Our
success depends, in large part, on our ability to obtain patent
protection for our products and to obtain and preserve our trade secrets
and expertise. We have been issued certain patents including those on
the use of Ampligen and Ampligen in combination with certain other
drugs for the treatment of HIV. We have also been issued patents on the
use of Ampligen in combination with certain other drugs for the
treatment of chronic hepatitis B virus, chronic hepatitis C virus, and a
patent which affords protection on the use of Ampligen in patients with
chronic fatigue syndrome. We have not been issued any patents in the
United States for the use of Ampligen as a sole treatment for any of the
cancers which we have sought to target. We cannot assure you that any of
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these applications will be approved or that our competitors will not
seek and obtain patents regarding the use of Ampligen in combination
with various other agents, for a particular target indication prior to
us. If we cannot protect our patents covering the use of Ampligen for a
particular disease, or obtain additional pending patents, we may not be
able to successfully market Ampligen.
The patent position of biotechnology and pharmaceutical firms is highly
uncertain and involves complex legal and factual questions.
To date, no consistent policy has emerged regarding the breadth of
protection afforded by pharmaceutical and biotechnology patents. There
can be no assurance that patent applications relating to our products or
technology will result in patents being issued or that, if issued, such
patents will afford meaningful protection against competitors with
similar technology. It is generally anticipated that there may be
significant litigation in the industry regarding patent and intellectual
property rights. Such litigation could require substantial resources
from us. No assurance can be made that our patents will provide
competitive advantages for our products or will not be successfully
challenged by competitors. No assurance can be given that patents do not
exist or could not be filed which would have a materially adverse effect
on our ability to market our products or to obtain or maintain any
competitive position that we may achieve with respect to our products.
Our patents also may not prevent others from developing competitive
products using a different technology.
There can be no assurance that we will have the financial resources
necessary to enforce patent rights we may hold.
If we cannot enforce the patent rights we currently hold we may be
required to obtain licenses from others to develop, manufacture or
market our products. There can be no assurance that we would be able to
obtain any such licenses on commercially reasonable terms, if at all. We
currently license certain proprietary information from third parties,
some of which may have been developed with government grants under
circumstances where the government maintained certain rights with
respect to the proprietary information developed. No assurances can be
given that such third parties will adequately enforce any rights they
may have or that the rights, if any, retained by the government will not
adversely affect the value of our license. Certain of our know-how and
technology is not fully patentable, particularly the procedures for the
manufacture of our Ampligen drug product which are carried out
according to standard operating procedure manuals.
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We may not be profitable unless we can produce Ampligen in commercial
quantities at costs acceptable to us.
We have never produced Ampligen or any other products in large
commercial quantities. Ampligen is currently produced only for use in
clinical trials. We must manufacture our products in compliance with
regulatory requirements in commercial quantities and at acceptable costs
in order for us to be profitable. We intend to utilize third-party
manufacturers and/or facilities if and when the need arises or, if we
are unable to do so, to build or acquire commercial-scale manufacturing
facilities. We are dependent upon certain third party supplies for key
components of the proposed products and for substantially all of the
production process. If we cannot manufacture commercial quantities of
Ampligen or enter into third party agreements for its manufacture at
costs acceptable to us, our operations will be significantly affected.
If our distributors do not market our product successfully, we may not
generate significant revenues or become profitable.
We have limited marketing and sales capability. Accordingly we may need
to enter into marketing agreements and third party distribution
agreements for our products in order to generate significant revenues
and become profitable. To the extent that we enter into co-marketing or
other licensing arrangements, any revenues received by us will be
dependent on the efforts of third parties, and there is no assurance
that these efforts will be successful. Our agreement with Gentiva Health
Services offers the potential to provide significant marketing and
distribution capacity in the United States while licensing and marketing
agreements with certain foreign firms should provide an adequate sales
force in South America, Africa, United Kingdom, Australia and New
Zealand, Canada, Austria, Spain and Portugal.
Our partners may not be able 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.
We cannot assure that our domestic or our foreign marketing partners will
be able to successfully distribute our products, or that we will be able
to establish future marketing or third party distribution agreements on
terms acceptable to us, or that the cost of establishing these
arrangements will not exceed any product revenues. The failure to
continue these arrangements or to achieve other such arrangements on
satisfactory terms could have a materially adverse effect on us.
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Ampligen safety profile and scientific literature.
We believe that Ampligen has been generally well tolerated with a low
incidence of clinical toxicity, particularly given the severely
debilitating or life threatening diseases that have been treated. A mild
flushing reaction has been observed in approximately 15% of patients
treated in our various studies. This reaction is occasionally accompanied
by erythema, a tightness of the chest, tachycardia, anxiety, shortness of
breath, subjective reports of "feeling hot," sweating and nausea. The
reaction is usually infusion-rate related and can generally be controlled
by slowing the infusion rate. Other adverse side effects include liver
enzyme level elevations, diarrhea, itching, urticaria (swelling of the
skin), bronchospasm, transient hypotension, photophobia, rash,
bradycardia, transient visual disturbances, arrhythmias, decreases in
platelets and white blood cell counts, anemia, dizziness, confusion,
elevation of kidney function tests, occasional temporary hair loss and
various flu-like symptoms, including fever, chills, fatigue, muscular
aches, joint pains, headaches, nausea and vomiting. These flu-like side
effect typically subside within several months. One or more of the
potential side effects might deter usage of Ampligen in certain clinical
situations and therefore, could adversely effect potential revenues and
physician/patient acceptability of our product. In general, we believe
that the relative safety profile to date has been well tolerated given
the severe Chronic diseases being targeted.
There is no assurance that successful manufacture of a drug on a limited
scale basis for investigational use will lead to a successful transition
to commercial, large-scale production.
Small changes in methods of manufacturing may affect the chemical
structure of Ampligen and other such RNA drugs, as well as their safety
and efficacy. Changes in methods of manufacture, including commercial
scale-up may affect the chemical structure of Ampligen and, can, among
other things, require new clinical studies and affect orphan drug status,
particularly, market exclusivity rights, if any, under the Orphan Drug
Act. The transition from limited production of pre-clinical and clinical
research quantities to production of commercial quantities of our
products will involve distinct management and technical challenges and
will require additional management and technical personnel and capital to
the extent such manufacturing is not handled by third parties. There can
be no assurance that our efforts will be successful or that any given
product will be determined to be safe and effective, capable of being
manufactured economically in commercial quantities or successfully
marketed.
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Rapid technological change.
The pharmaceutical and biotechnology industries are subject to rapid and
substantial technological change. Technological competition from
pharmaceutical and biotechnology companies, universities, governmental
entities and others diversifying into the field is intense and is
expected to increase. Most of these entities have significantly greater
research and development capabilities than we do, as well as substantial
marketing, financial and managerial resources, and represent significant
competition for us. There can be no assurance that developments by others
will not render our products or technologies obsolete or noncompetitive
or that we will be able to keep pace with technological developments.
Substantial competition.
Competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products. Some of these products may have an entirely different approach
or means of accomplishing similar therapeutic effects to products being
developed by us. These competing products may be more effective and less
costly than our products. In addition, conventional drug therapy, surgery
and other more familiar treatments will offer competition to our
products. Furthermore, many of our competitors have significantly greater
experience than us in pre-clinical testing and human clinical trials of
pharmaceutical products and in obtaining FDA, EMEA HPB and other
regulatory approvals of products. Accordingly, our competitors may
succeed in obtaining FDA EMEA and HPB product approvals more rapidly than
us. If any of our products receive regulatory approvals and we commence
commercial sales of our products, we will also be competing with respect
to manufacturing efficiency and marketing capabilities, areas in which we
have no experience. Our competitors may possess or obtain patent
protection or other intellectual property rights that prevent, limit or
otherwise adversely affect our ability to develop or exploit our
products.
Limited manufacturing experience and capacity.
Ampligen is currently produced only in limited quantities for use in our
clinical trials and we are dependent upon certain third party suppliers
for key components of our products. The failure to continue these
arrangements on satisfactory terms could have a material adverse affect
on us. Also, to be successful, our products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. Our current facilities are not adequate for the
production of our proposed products for large-scale commercialization. We
intend to utilize third-party facilities if and when the need arises or,
17
if we are unable to do so, to build or acquire commercial-scale
manufacturing facilities. We will need to comply with regulatory
requirements for such facilities, including those of the FDA EMEA and HPB
pertaining to Good Manufacturing Practices ("GMP") regulations. There can
be no assurance that such facilities can be used, built, or acquired on
commercially acceptable terms, that such facilities, if used, built, or
acquired, will be adequate for our long-term needs.
We may be subject to product liability claims from the use of Ampligen
or other of our products which could negatively affect our future
operations.
We face an inherent business risk of exposure to product liability claims
in the event that the use of Ampligen or other of our products results
in adverse effects. This liability might result from claims made directly
by patients, hospitals, clinics or other consumers, or by pharmaceutical
companies or others manufacturing these products on our behalf. Our
future operations may be negatively effected from the litigation costs,
settlement expenses and lost product sales inherent to these claims.
While we will continue to attempt to take appropriate precautions, we
cannot assure that we will avoid significant product liability exposure.
Although we currently maintain worldwide product liability insurance
coverage, there can be no assurance that this insurance will provide
adequate coverage against product liability claims. While no product
liability claims are pending or threatened against us to date, a
successful product liability claim against us in excess of our insurance
coverage could have a negative effect on our business and financial
condition.
Members of our Scientific Advisory Board may have conflicting interests
and may disclose data and technical know how to our competitors.
All of our Scientific Advisory Board members are employed by other
entities, which may include our competitors. Although we require each of
our Scientific Advisory Board members to sign a non-disclosure and
non-competition agreement with respect to the data and information that
he or she receives from us, we cannot assure you that members will abide
by them. If a member were to reveal this information to outside sources,
accidentally or otherwise, our operations could be negatively effected.
Since our business depends in large part on our ability to keep our
technical expertise confidential, any revelation of this information to a
competitor or other source could have an adverse effect on our
operations.
18
There is no guarantee that our trade secrets will not be disclosed or
known by our competitors.
To protect our rights, we require certain employees and consultants to
enter into confidentiality agreements with us. There can be no assurance
that these agreements will not be breached, that we would have adequate
and enforceable remedies for any breach, or that any trade secrets of
ours will not otherwise become known or be independently developed by
competitors.
The loss of Dr. Carter's services could hurt our chances for success.
Our success is dependent on the continued efforts of Dr. William A.
Carter because of his position as a pioneer in the field of Nucleic Acid
drugs, his being co-inventor of Ampligen and his knowledge of the
Company's overall activities, including patents, clinical trials,
corporate relationships and relationships with various governmental
regulatory agencies. The loss of Dr. Carter's services could have a
material adverse effect on our operations. While we have an employment
agreement with Dr. William A. Carter, and have secured key man life
insurance in the amount of $2 million on the life of Dr. Carter, the loss
of Dr. Carter or other key personnel, such as Dr. David Strayer or Dr.
Carol Smith, or the failure to recruit additional personnel as needed
could have a materially adverse effect on our ability to achieve our
objectives.
Uncertainty of health care reimbursement and potential legislation.
Our ability to successfully commercialize our products will depend, in
part, on the extent to which reimbursement for the cost of such products
and related treatment will be available from government health
administration authorities, private health coverage insurers and other
organizations. Significant uncertainty exists as to the reimbursement
status of newly approved health care products, and from time to time
legislation is proposed, which, if adopted, could further restrict the
prices charged by and/or amounts reimbursable to manufacturers of
pharmaceutical products. We cannot predict what, if any, legislation
will ultimately be adopted or the impact of such legislation on us. There
can be no assurance that third party insurance companies will allow us to
charge and receive payments for products sufficient to realize an
appropriate return on our investment in product development.
Hazardous materials.
Our business involves the controlled use of hazardous materials,
carcinogenic chemicals and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such
19
materials comply in all material respects with the standards prescribed
by applicable regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of
such an accident or the failure to comply with applicable regulations, we
could be held liable for any damages that result, and any such liability
could be significant. The company does not maintain insurance coverage
against such liabilities.
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-
looking statements made by us, you should not place undue reliance on
any such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which it is made and we
undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which
such statement is made or reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
us to predict which will arise. In addition, we cannot assess the impact
of each factor on our business of the extent to which any factors, or
combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Our research and
clinical efforts may continue for the next several years and we may
continue to incur losses due to clinical costs incurred in the
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 Europe, Canada and in the
United States.
Critical Accounting Policies
Financial Reporting Release No. 60., which was released by the
Securities and Exchange Commission, requires all companies to include
a discussion of critical accounting policies or methods used in the
preparation of financial statements. The significant accounting
policies that we believe are most critical to aid in fully
understanding our reported financial results are the following:
Use of Estimates
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
20
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
for the reporting period. Actual results could differ from those
estimates.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 121.
"Accounting for Long-Lived Assets and Long Lived Assets to be disposed
of," requires that long-lived assets and certain identifiable
intangibles, including goodwill, be held and used by an entity, be
reviewed for impairment whenever events or changes in circumstances
indicated that the carrying amount of the assets may not be
recoverable. We assess the recoverability of fixed assets and
intangibles based on undiscounted estimated future operating cash
flows. If we determine that the carrying values have been impaired,
the measurement and recognition of the impairment will be based on
estimated future operating cash flows. During the fourth quarter of
2001, we recognized an impairment of $485,000 in connection with
goodwill related to equity investments of ours. In June, 2002 we
recognized an impairment of $678,000 with respect to another
investment whose operations had not evolved to the point where the
company's full carrying value could be supported. As of June 30, 2002,
management believes that the carrying value of the remaining long-
lived assets and identifiable intangibles have not been impaired.
Patents and Trademarks
Patents and trademarks are stated at cost (primarily legal fees) and
are amortized using the straight line method over the life of the
assets. The Company reviews its patents and trademark rights
periodically to determine whether they have continuing value. Such
review includes an analysis of the patent and trademark's ultimate
revenue and profitability potential on an undiscounted cash basis to
support the realizability of its respective capitalized cost. In
addition, management's review addresses whether each patent continues
to fit into Company's strategic business plans.
Research and Developments Costs
Research and development costs are direct costs related to both future
and present products and are charged to operations as incurred. The
Company recognized research and development costs of $4,765,000 and
21
$3,732,000 in the nine month period ending September 30, 2001 and 2002
respectively.
New Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
statements No. 4,44 and 64, Amendment of FASB statement No. 13, and
Technical Corrections" ("SFAS 145"). FASB No. 4 required that gains and
losses from extinguishment of debt that were included in the
determination of net income be aggregated and, if material, be classified
as an extraordinary item, net of related income tax. Effective January 1,
2003, pursuant to SFAS 145, the treatment of debt is to be included in
"Other Income" in the Financial Statements. Currently the Company
believes that the adoption of SFAS 145 will not have an impact on it's
financial position and results of operations.
On July 30, 2002, the FASB issued FASB Statement No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, which nullifies EITF
Issues No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)" and No. 88-10, Costs Associated with Lease
Modification or Termination." Statement 146 fundamentally changes how a
company should account for future "restructurings." The company believes
that the adoption of SFAS 146 will not have an impact on it's financial
position and results of operations.
RESULTS OF OPERATIONS
Three months ended September 30, 2002 versus Three months ended September
- -------------------------------------------------------------------------
30, 2001
- --------
Our losses in the three months ended September 30, 2002 were
approximately $1,891,000 or some $254,000 less than the $2,145,000 loss
recorded for the three months ended September 30, 2001. These losses
include non-cash stock compensation expense of $132,000 in 2002 and
$78,000 in 2001. Excluding these non-cash stock compensation charges, our
recorded losses were $1,759,000 in 2002 and $2,067,000 in 2001.
Research and Development ("R&D") costs were lower by $395,000 in the
three months ended September 30, 2002 compared to the same period in
2001. Drug production costs were down approximately $135,000 primarily
due to smaller purchases of raw materials used to manufacture Ampligen.
In 2001, we spend $289,000 for raw material compared to $154,000 in 2002.
Drug production was ramped up in 2001 in order to build up sufficient
22
drug inventory for use in the ongoing CFS clinical trials and the newly
initiated HIV clinical trials. Direct costs relating to the ME/CFS
clinical trials were lower by $228,000 in 2002 compared to 2001
reflecting less activity as enrollment in the Phase III ME/CFS trial
nears completion. The expenses relating to the Phase IIb HIV trials
increased some $145,000 as patient enrollment increased. Other expenses
relating to R&D work in the U.S. and Europe were lower in the three
months ended September 30, 2002 compared to the same period in 2001.
Exclusion of non-cash stock compensation charges, general and
administration ("G&A") expenses were approximately $634,000 in 2002
versus $595,000 in 2001 for the three months ended September 30, 2002.
Legal and related costs were higher in 2002 primarily due to a credit in
the amount of $107,000 received in 2001 from our insurance underwriter to
reimburse us for certain legal fees previously paid to defend against the
Asensio lawsuit. Public Relations expenses were lower in 2002 by some
$96,000. Increased expenses include office rents, insurance premiums and
corporate travel totaling approximately $23,000.
We had stock compensation expense of $132,000 in the three month ended
September 30, 2002 reflecting the grant of stock warrants to outside
parties for services provided. In this same period in 2001, we recorded a
non-cash charge of $78,000 reflecting the grant of warrants to purchase
common stock to certain individuals that serve as financial advisors to
the Company.
Interest income was $23,000 for the three months ended September 30, 2002
versus interest income of $68,000 during the same period in 2001. This
decrease in interest income reflects the significant drop in rates earned
on money market securities.
Nine months ended September 30, 2002 versus nine months ended September
- -----------------------------------------------------------------------
30, 2001
- --------
Our losses for the nine months ended September 30, 2002 were down
$955,000 when compared the same period on 2001. The losses recorded for
the nine months ended 2002 were $6,013,000 compared to losses of
$6,968,000 in 2001. This reduction in losses is due to several factors as
outlined below.
Overall revenue in 2002 were $826,000 compared to $304,000 in 2001. The
Company's revenues basically consist of income from the ME/CFS cost
23
recovery treatment programs and licensing fees. In 2002, licensing fee
income was $563,000 compared to no licensing fee income in 2001. Cost
recovery treatment income was $263,000 in 2002 versus $304,000 in 2001.
Cost recovery treatment revenues have declined in the past two years as
the Company has focused all resources toward initiating and conducting
the Phase III ME/CFS clinical trial and the two Phase IIb HIV clinical
trials. The $563,000 licensing fee income in 2002 is the product of the
Laboratorios del Dr. Esteve, S.A. ("Esteve") agreement executed in March,
2002. This agreement gives Esteve the exclusive right, upon regulatory
approval, to market and distribute Ampligen in Spain, Portugal and
Andorra for the treatment of patients afflicted with ME/CFS.
Research an development ("R&D") costs were $3,732,000 in 2002 versus
$4,765,000 in 2001 reflecting a reduction of $1,033,000 in the first nine
months of 2002. Drug production costs were down some $373,000 in 2002,
primarily due to a larger production of Ampligen in 2001. Ampligen
inventories were built of in 2001 in anticipation of the increased
Ampligen needs in our ME/CFS and HIV clinical trials. Costs relating to
the production of Ampligen are expensed as incurred. Costs related to
the ME/CFS clinical trials were down some $588,000 in 2002 compared to
2001 reflecting the lower number of patients enrolled in the ME/CFS cost
recovery treatment program and the Phase III ME/CFS clinical trial. The
costs related to the ME/CFS clinical trials should continue to decrease
as the phase III ME/CFS clinical trial near completion. The cost of the
HIV clinical trials increased $433,000 in 2002 versus 2001 as patient
enrollment has steadily increased in 2002. These HIV trials were
initiated in 2001. Our cost of filing and maintaining our patent estate,
consisting of approximately 350 patents, was lower by $212,000 in 2002
compared to 2001. In 2001, we abandoned certain foreign patents deemed
non-essential and expensed the cost of $29,000 for these patents.
General and administrative ("G&A") expenses were $2,447,000 in the nine
months ended September 30, 2002 compared to $2,677,000 in 2001. Excluding
stock compensation expenses, G&A expenses were $2,315,000 in 2002 versus
$2,004,000 in 2001: reflecting an expense increase of $311,000. This
increase was primarly due to increased legal expenses relating to the
January, 2002 Asensio trial in Philadelphia. Increased cost in insurance
premiums and office rent were basically offset by reduced costs in
salaries and temp help. Stock compensation expense was $132,000 through
September, 2002 compared to $673,000. Stock compensation expense is
primarily calculated using the Black-Scholes model for determining the
value of non-public warrants granted to non-employee parties providing a
service for the company. In 2001, some $262,000 of the $673,000 stock
24
compensation expense reflected was due to the Board of Directors
extending the expiration date of certain warrants.
Interest income was $90,000 in 2002 versus $248,000 in 2001. This
reduction in interest income reflects much lower money marketing rates.
and less funds available to invest. The company invests any cash on hand
in excess of immediate need in short-term market investments.
Included in our 2002 losses is a $678,000 write off of our $1,074,000
investment in R.E.D. Labs. In June 2002, we determined that our 3.3%
interest in R.E.D. was impaired and accordingly we wrote off $678,000 of
this investment.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and short term investments were $4,308,000 as
of September 30, 2002 compared to $8,417,000 at December 31, 2001
reflecting a net use of cash in the amount of $4,109,000 in the first
nine months of 2002.
Operating activities utilized $4,927,000 reflecting cash outlays in
support of the Phase III ME/CFS clinical trial as well as the Phase IIb
HIV trials now underway. In addition we have significantly invested in
expanding our capacity to manufacture liquid Ampligen doses through
outside suppliers as well as expended funds to increase our supplies of
Ampligen. These expenditures were made to assure an adequate and stable
supply of Ampligen to support the ongoing clinical trials as well as
provide the capacity to manufacture Ampligen in commercial quantities.
Some portion of these costs are expected to be recovered under the
expanded access, cost-recovery, programs authorized by the FDA and
regulatory bodies in other countries. The costs of the Phase IIb HIV
trials will increase as more patients are recruited. However, the costs
of these HIV trials should be lower overall due to certain inherent
efficiencies of running the two clinical trials in parallel.
Proceeds from Financing activities in the first nine months of 2002 are
down some $1,112,000 compared to the same period in 2001.
This decrease basically reflects a combination of fewer stock warrants
being exercised in the amount of $1,991,000, offset by a placement of
convertible securities totaling $946,000 with Laboratorios del Dr.
Esteve, S.A. ("Esteve")in 2002. The Esteve placement was pursuant to the
terms of a sales and distribution agreement executed in March, 2002.
25
Our major source of financing in 2000 and 2001 was proceeds from
warrantholders exercising stock warrants. We received $9,985,000 in 2000
and $8,075,000 in 2001. In the first nine months of 2002, warrant holders
exercised 12,400 warrants producing proceeds of $59,000. A major factor
contributing to this downturn in warrants being exercised is the state of
the stock market and the biotech sector in particular. We have some
2,716,000 non-public outsider warrants outstanding, which, if exercised,
would produce proceeds of $14,814,000. The exercise prices of these
warrants range from $1.75 to $16.00. Depending on future market
conditions and the company's stock price, some of these warrants may be
exercised. However the company is not counting on such event at this
time.
The company's cash burn rate has declined in recent months primarily due
to lower legal costs, the restructuring of our European operation and
other management actions. These actions should allow the company to
continue operations through May, 2003 with the current cash on hand. In
the meantime, we are pursing additional capital by one or more of the
following programs, 1) a private placement of equity in either Hemispherx
Biopharma, Inc. or our European subsidiary, Hemispherx Biopharma-Europe,
S.A., 2) the granting of licensing agreements to corporate partner, 3) a
partnership arrangement with another Biotech Company to develop and
market Ampligen .
Any additional equity funding may result in significant dilution and
could involve the issuance of securities with rights, which are senior to
those of existing stockholders. We may also need additional funding
earlier than anticipated, and our cash requirements, in general, may vary
materially from those now planned, for reasons including, but not limited
to, changes in our research and development programs, clinical trials,
competitive and technological advances, the regulatory process, and
higher than anticipated expenses and lower than anticipated revenues from
certain of our clinical trials for which cost recovery from participants
has been approved.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
Excluding obligations to pay us for various licensing related fees, we
had approximately $4,308,000 in cash, cash equivalents and short term
investments at September 30, 2002. To the extent that our cash and cash
equivalents exceed our near term funding needs, we invest the excess cash
in three to six month high quality interest bearing financial
26
instruments. The Company employs established conservative policies and
procedures to manage any risks with respect to investment exposure.
Item 4: Controls and Procedures
Our management, including the Chairman of the Board (serving as the
principal executive officer) and the Chief Financial Officer, have
conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on that
evaluation, the Chairman of the Board and the Chief Financial Officer
concluded that the disclosure controls and procedures are effective in
ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion. There
have been no significant changes in internal controls, or in other
factors that could significantly affect internal controls, subsequent to
the date the Chairman of the Board and Chief Financial Officer completed
their evaluation.
Part II - OTHER INFORMATION
ITEM 1: Legal Proceedings
In 1998, we filed a multi-count complaint against Manuel P. Asensio,
Asensio & Company, Inc.("Asensio"). The action included claims of
defamation, disparagement, tortious interference with existing and
prospective business relations and conspiracy, arising out of the
Asensio's false and defamatory statements. The complaint further alleged
that Asensio defamed and disparaged us in furtherance of a manipulative,
deceptive and unlawful short-selling scheme between August, 1998, and the
present. In 1999, Asensio filed an answer and counterclaim alleging that
in response to Asensio's strong sell recommendation and other press
releases, we made defamatory statements about Asensio. We denied the
material allegations of the counterclaim. In July 2000, following
dismissal in federal court for lack of subject matter jurisdiction, we
transferred the action to the Pennsylvania State Court. In March 2001,
the defendants responded to the complaints as amended and a trial
commenced on January 30, 2002 resulting in a withdrawal with prejudice
of the counterclaim against us. A jury verdict disallowed the claims
against the defendants for defamation and disparagement. However, on
July 2, 2002 the Court entered an order granting us a new trial against
Asensio for defamation and disparagement. On July 10, 2002 Asensio filed
a Notice of Appeal to the Superior Court of Pennsylvania from order of
July 2, 2002. There has been no material changes in the status of this
litigation as of October 31, 2002.
27
In June 2002 a former ME/CFS clinical trial patient and her husband filed
a claim in the Superior Court of New Jersey, Middlesex County, against
us, one of our clinical trial investigators and others alleging that she
was harmed in the ME/CFS clinical trial as a result of negligence and
breach of warranties. We believe the claim is without merit and we are
defending the claim against us through our product liability insurance
carrier.
In July 2002 we filed a multimillion dollar suit against Federal
Insurance Company ("Federal") seeking (1) a judicial order declaring our
rights and the obligations of Federal under the insurance policy Federal
sold to us (2) monetary damage for breach of contract resulting from
Federal's refusal to fully defend us in connection with the Asensio
litigation (3) monetary damages to compensate us for Federal's breach of
its fiduciary duty faith and dealing and (4) monetary damages, interest,
costs, and attorneys fees to compensate us for Federal's violation of the
Pennsylvania Bad Faith Statute.
ITEM 2: Changes in Securities and Use of Proceeds
During the quarter ended September 30, 2002, we issued an aggregate of
7,068 shares of common stock to two parties, for an aggregate of $15,000
in funds. All of these shares were issued pursuant to the exemption from
registration provided by section 4(2) of the Securities Act of 1933. No
commissions were paid with regard to these sales.
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
(a)Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b)Reports on Form 8-K
None
28
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: November 14, 2002 William A. Carter, M.D.
Chief Executive Officer & President
/S/ Robert E. Peterson
--------------------------
Date: November 14, 2002 Robert E. Peterson
Chief Financial Officer
29
CERTIFICATION PURSUANT OT RULE 13A-14 AND 15D-14 OF
THE SECURITIES AND EXCHANGE ACT OF 1934
I, Robert E. Peterson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Hemispherx Biopharma, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operation and cash flow of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have;
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to filing date of this quarterly report (the
"Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation , to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls: and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weakness.
Date: November 14, 2002
/S/ Robert E. Peterson
__________________________
Robert E. Peterson
Chief Financial Officer
30
CERTIFICATION PURSUANT OT RULE 13A-14 AND 15D-14 OF
THE SECURITIES AND EXCHANGE ACT OF 1934
I, William A. Carter, certify that:
5. I have reviewed this quarterly report on Form 10-Q of
Hemispherx Biopharma, Inc. (the "registrant");
6. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
7. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operation and cash flow of the
registrant as of, and for, the periods presented in this
quarterly report;
8. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have;
d) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
e) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to filing date of this quarterly report (the
"Evaluation Date"); and
f) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
7. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation , to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
c) All significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
d) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls: and
8. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weakness.
Date: November 14, 2002
/S/ William A. Carter
__________________________
William A. Carter
Chief Executive Officer
31
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hemispherx Biopharma, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Robert E. Peterson, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and result of operations
of the Company.
/S/ Robert E. Peterson
------------------------
Robert E. Peterson
Chief Fianacial Officer
November 14, 2002
32
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hemispherx Biopharma, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Willaim A. Carter , Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of operations of
the Company.
/S/ William A. Carter
------------------------
William A. Carter
Chief Executive Officer
November 14, 2002