10-Q 1 d10q.txt QUARTERLY REPORT FOR PERIOD ENDING 9-30-2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-15327 ------- CYTRX CORPORATION (Exact name of Registrant as specified in its charter) Delaware 58-1642740 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 154 Technology Parkway Suite 200 Norcross, Georgia 30092 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 368-9500 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. YES X NO_____ ----- Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and outstanding as of November 14, 2001: 10,825,196. CYTRX CORPORATION ----------------- Form 10-Q --------- Table of Contents -----------------
Page ---- PART I. FINANCIAL INFORMATION Item 1 Financial Statements: Condensed Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000 3 Condensed Consolidated Statements of Operations (unaudited) for the Three Month and Nine Month Periods Ended September 30, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Month Periods Ended September 30, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3 Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 11 SIGNATURES 12
2 Part I - FINANCIAL INFORMATION Item 1. - Financial Statements CYTRX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2001 2000 ------------------ ----------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 1,877,109 $ 3,779,376 Receivables 30,496 54,160 Other current assets 49,452 34,171 ------------------ ----------------- Total current assets 1,957,057 3,867,707 Property and equipment, net 1,892,290 2,331,977 Note receivable 516,475 598,576 Other assets 60,978 60,978 ------------------ ----------------- Total assets $ 4,426,800 $ 6,859,238 ================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 122,364 $ 298,236 Accrued liabilities 477,223 942,188 ------------------ ----------------- Total current liabilities 599,587 1,240,424 Commitments Stockholders' equity: Preferred Stock, $.01 par value, 1,000 shares authorized, including 1,000 shares of Series A Junior Participating Preferred Stock; no shares issued and outstanding - - Common stock, $.001 par value, 50,000,000 shares authorized; 11,396,512 and 10,734,012 shares issued at September 30, 2001 and December 31, 2000, respectively 11,396 10,734 Additional paid-in capital 74,324,436 72,737,739 Treasury stock, at cost (633,816 shares held at September 30, 2001 and December 31, 2000) (2,279,238) (2,279,238) Accumulated deficit (68,229,381) (64,850,421) ------------------ ----------------- Total stockholders' equity 3,827,213 5,618,814 ------------------ ----------------- Total liabilities and stockholders' equity $ 4,426,800 $ 6,859,238 ================== =================
See accompanying notes. 3 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------ ------------------------------------ 2001 2000 2001 2000 ---------------- ---------------- ---------------- ---------------- Revenues: Net sales $ 28,140 $ 168,086 $ 64,219 $ 353,370 Interest income 31,598 47,993 136,304 116,901 Grant income 46,584 107,269 141,876 316,741 Other 57,818 80,594 158,335 250,400 ---------------- ---------------- ---------------- ---------------- 164,140 403,942 500,734 1,037,412 Expenses: Cost of sales 20,761 82,035 39,972 178,736 Research and development 384,084 387,516 1,320,809 1,615,934 Selling, general and administrative 761,500 540,583 2,518,913 1,550,954 ---------------- ---------------- ---------------- ---------------- 1,166,345 1,010,134 3,879,694 3,345,624 ---------------- ---------------- ---------------- ---------------- Loss from continuing operations (1,002,205) (606,192) (3,378,960) (2,308,212) Income from discontinued operations - - - 799,328 ---------------- ---------------- ---------------- ---------------- Net loss $ (1,002,205) $ (606,192) $ (3,378,960) $ (1,508,884) ================ ================ ================ ================ Basic and diluted income (loss) per common share: Continuing operations $ (0.10) $ (0.06) $ (0.33) $ (0.25) Discontinued operations - - - 0.09 ---------------- ---------------- ---------------- ---------------- Net loss $ (0.10) $ (0.06) $ (0.33) $ (0.16) ================ ================ ================ ================ Basic and diluted weighted average shares outstanding 10,272,343 9,937,838 10,202,806 9,198,725
See accompanying notes. 4 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Month Period Ended September 30, --------------------------------------------- 2001 2000 -------------------- -------------------- Cash flows from operating activities: Net loss $ (3,378,960) $ (1,508,884) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 439,687 153,241 Gain on sale of Titermax - (679,784) Stock option and warrant expense 1,183,891 217,875 Net change in assets and liabilities (550,353) (1,190,777) -------------------- -------------------- Total adjustments 1,073,225 (1,499,445) -------------------- -------------------- Net cash used by operating activities (2,305,735) (3,008,329) Cash flows from investing activities: Capital expenditures/retirements, net - 63,442 Net proceeds from sale of Titermax - 100,000 -------------------- -------------------- Net cash provided by investing activities - 163,442 Cash flows from financing activities: Net proceeds from issuance of common stock 403,468 2,185,793 Retirement of debt - (200,000) -------------------- -------------------- Net cash provided by financing activities 403,468 1,985,793 -------------------- -------------------- Net decrease in cash and cash equivalents (1,902,267) (859,094) Cash and cash equivalents at beginning of period 3,779,376 3,031,893 -------------------- -------------------- Cash and cash equivalents at end of period $ 1,877,109 $ 2,172,799 ==================== ====================
See accompanying notes. 5 CYTRX CORPORATION ----------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- September 30, 2001 ------------------ (Unaudited) ----------- 1. Description of Company and Basis of Presentation CytRx Corporation ("CytRx" or "the Company") is a biopharmaceutical company focused on the development and commercialization of high-value human therapeutics. The Company's current research and development activities include CRL-5861, an intravenous agent for treatment of sickle cell disease and other acute vaso-occlusive disorders, and TranzFect, a delivery technology for DNA- based vaccines and therapeutics. CytRx also has a research pipeline with opportunities in the areas of muscular dystrophy, cancer, spinal cord injury, vaccine delivery, gene therapy and food animal feed additives. The accompanying condensed consolidated financial statements at September 30, 2001 and for the three month and nine month periods ended September 30, 2001 and 2000 are unaudited, but include all adjustments, consisting of normal recurring entries, which the Company's management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the Company's audited financial statements in its Form 10-K for the year ended December 31, 2000. 2. Agreement with Cappello Capital Corp. Effective January 1, 2001, the Company executed an agreement with Cappello Capital Corp. ("Cappello") for general corporate financial advisory services. In connection with this agreement, the Company issued to Cappello warrants to purchase up to 1.4 million shares of its common stock with an exercise price of $1.00 per share. During the three month and nine month periods ended September 30, 2001, the Company recognized non-cash charges of $234,000 and $924,000, respectively, associated with the issuance and vesting of these warrants. 3. License Agreement with Ivy Animal Health In February 2001, the Company entered into a license agreement with Ivy Animal Health, Inc. ("Ivy") of Overland Park, Kansas, whereby CytRx granted to Ivy a worldwide exclusive license to its investigational agent, CRL-8761, a non-antibiotic feed additive that enhances growth performance in monogastric food animals such as poultry and pigs. As part of the license, CytRx received a nominal upfront payment, and will receive a milestone fee upon regulatory approval in the United States and an eventual royalty equal to 5% of net sales. 6 4. Segment Reporting
Continuing Operations ------------------------------------------------------ Total Recruiting Product Continuing Discontinued (in thousands) Services Development Operations Operations -------------------------------------------------------------------------------------------------------------- Three Months Ended September 30, 2001: Sales to external customers $ 28 $ - $ 28 $ - Intersegment sales - - - - Segment profit (loss) - (1,002) (1,002) - Total assets - 4,427 4,427 - Three Months Ended September 30, 2000 Sales to external customers 168 - 168 - Intersegment sales - - - - Segment profit (loss) 69 (675) (606) - Total assets - 5,507 5,507 - Nine Months Ended September 30, 2001: Sales to external customers 64 - 64 - Intersegment sales - - - - Segment profit (loss) 2 (3,381) (3,379) - Total assets - 4,427 4,427 - Nine Months Ended September 30, 2000: Sales to external customers 353 - 353 170 Intersegment sales - - - - Segment profit (loss) 148 (2,456) (2,308) 799 Total assets - 5,507 5,507 -
7 Item 2. -- Management's Discussion and Analysis of Financial Condition And --------------------------------------------------------------- Results of Operations --------------------- This discussion includes "forward looking" statements that reflect our current views with respect to future events and financial performance. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events, particularly those risks identified under "Risk Factors" set forth in Exhibit 99.1 to our Annual Report on Form 10-K, and should not unduly rely on these forward looking statements. We undertake no duty to update the information in this discussion if any forward looking statement later turns out to be inaccurate. Liquidity and Capital Resources At September 30, 2001 we had cash and cash equivalents of $1.9 million and net assets of $3.8 million, compared to $3.8 million and $5.6 million, respectively, at December 31, 2000. Working capital totaled $1.4 million at September 30, 2001, compared to $2.6 million at December 31, 2000. In November 2000, we entered into an exclusive, worldwide license agreement (the "Merck License") with Merck & Co., Inc. ("Merck") whereby we granted to Merck the right to use our TranzFect technology in DNA-based vaccines targeted to four infectious diseases, one of which is HIV. For the license to the TranzFect technology to treat the first disease target, Merck has paid us a signature payment of $2 million, and will pay us milestone and product approval payments of up to $4 million as they develop the product. Additionally, if certain conditions are met regarding patent protection and Merck's competitive position, Merck may pay a royalty to us of 1% on net sales of products incorporating TranzFect for the first disease target. For each of the licenses to the TranzFect technology to treat the three additional disease targets, Merck will make a series of milestone and product approval payments to us totaling up to $2,850,000 each. If and when sales of products incorporating TranzFect for the three additional disease targets commence, we will receive royalties of between 2 and 4% of the net sales from such products. Additionally, if certain conditions are met regarding patent protection and Merck's competitive position, Merck may pay an additional royalty of 1% on net sales of products incorporating TranzFect for these additional disease targets. Merck will also pay an annual fee of between $50,000 and $100,000 until the first product approval for one of the three additional disease targets. Merck may terminate the Merck License at any time, upon 90 days written notice. All amounts paid to us are non-refundable upon termination and require no additional effort on our part. In April 2000, we entered into a private equity line of credit agreement (the "ELC Agreement") whereby we have the right to "put" shares of our common stock to an investor from time to time to raise up to $5,000,000, subject to the conditions and restrictions included in the ELC Agreement. To date, we have not exercised our right to sell shares under this agreement. Our ability to raise significant funds through this mechanism is subject to a number of risks and uncertainties, including stock market conditions and our ability to maintain an effective registration of the related shares with the Securities and Exchange Commission. 8 We believe that we will have adequate working capital to allow us to operate through the first half of 2002, but that additional funds will be needed to significantly advance any of our technologies under development. We are continuing to seek additional corporate partnerships for TranzFect, and are also seeking government support for additional clinical studies of CRL-5861 (FLOCOR) in sickle cell disease. Some of our additional capital requirements may be provided by the ELC Agreement and by potential milestone payments pursuant to the Merck License, but we are also pursuing other sources of equity capital. The results of our technology licensing efforts and/or the actual proceeds of any fund-raising activities will determine our ongoing ability to operate as a going concern with the current portfolio of technologies under development. These efforts are subject to market conditions and our ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. There is no assurance that such funding will be available to finance our operations on acceptable terms, if at all. Insufficient funding may require us to delay, reduce or eliminate some or all of our research and development activities, planned clinical trials and administrative programs. In order to fund our operations we are considering all available options, including the possible sale of the Company to, or merger with, another organization. The above statements regarding our plans and expectations for future financing are forward-looking statements that are subject to a number of risks and uncertainties. Our ability to obtain future financing through joint ventures, product licensing arrangements, sales of equity securities or otherwise is subject to market conditions and our ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. There can be no assurance that we will be able to obtain future financing from these sources. Additionally, depending upon the outcome of our fund raising efforts, the accompanying financial information may not necessarily be indicative of future operating results or future financial condition. Results of Operations We recorded net losses of $1,002,000 and $3,379,000 for the three month and nine month periods ended September 30, 2001 as compared to $606,000 and $1,509,000 for the same periods in 2000. Loss from continuing operations was $1,002,000 and $3,379,000 for the three month and nine month periods ended September 30, 2001 as compared to $606,000 and $2,308,000 in 2000. Net sales from continuing operations, which consist of service revenues from Spectrum Recruitment Research, were $28,000 and $64,000 during the three month and nine month periods ended September 30, 2001 as compared to $168,000 and $353,000 in 2000. Cost of sales were $21,000 and $40,000 for the three month and nine month periods ended Sepember 30, 2001 as compared to $82,000 and $179,000 in 2000. Spectrum's revenues are derived from selling its consulting services to third party companies seeking to recruit new personnel. The decline in revenues during 2001 is reflective of the general slowdown affecting the economy as a whole. However, because Spectrum utilizes the services of external consultants to fulfill its clients' needs, it can retract or expand its operations easily. Spectrum's activities are ancillary to the Company's operational focus and the Company is not dependent on the cash flow it generates. 9 Interest income was $32,000 and $136,000 during the three month and nine month periods ended September 30, 2001, as compared to $48,000 and $117,000 in 2000. The variance between years generally corresponds to fluctuating cash and investment balances. Grant income was $47,000 and $142,000 during the three month and nine month periods ended September 30, 2001, as compared to $107,000 and $317,000 in 2000. Costs related to grant income are included in research and development expense and generally approximate the amount of revenue recognized. Other income was $58,000 and $158,000 during the three month and nine month periods ended September 30, 2001 as compared to $81,000 and $250,000 in 2000. Other income for 2001 primarily consists of sublease revenues. For the nine month period ended September 30, 2000, other income includes $125,000 in fees paid by a third party during the first quarter of 2000 pursuant to an Evaluation Agreement for the Company's gene delivery technology. Research and development expenditures were $384,000 and $1,321,000 during the three month and nine month periods ended September 30, 2001, as compared to $388,000 and $1,616,000 in 2000. Research and development expenditures for all periods primarily relate to the Company's development activities for CRL-5861 (FLOCOR). A Phase III clinical trial of CRL-5861 for treatment of acute sickle cell crisis was completed in December 1999. Expenditures during 2000 are higher than in 2001 due to costs incurred related to the wrap-up and analysis of the Phase III results and consultation with the Company's scientific and regulatory advisors. The Company's activities with regard to CRL-5861 during 2001 have focused primarily on preparation for the next Phase III clinical trial, including preparations for government grant applications, as well as the initiation of preclinical studies for the treatment of spinal cord injury and cancer. Selling, general and administrative expenditures were $762,000 and $2,519,000 during the three and nine month periods ended September 30, 2001, as compared to $541,000 and $1,551,000 in 2000. During each of the periods, the vesting criteria of employee and consultant stock options and warrants were achieved, resulting in aggregate non-cash charges of $392,000 and $1,184,000, during the three and nine month periods ended September 30, 2001 and $-0- and $218,000 during the same periods in 2000. Excluding these charges, selling, general and administrative expenditures were $370,000 and $1,335,000 during the 2001 periods and $541,000 and $1,333,000 during the 2000 periods. Income from discontinued operations of $799,000 reported during the nine month period ended September 30, 2000 relates to the Company's TiterMax research adjuvant product line, which we sold in June 2000, and includes a gain of $680,000. 10 Item 3. -- Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- There have been no changes in our assessment of market risk from that disclosed in our Form 10-K for the year ended December 31, 2000. PART II-- OTHER INFORMATION Item 6. -- Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -- None (b) Reports on Form 8-K -- None 11 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. CYTRX CORPORATION (Registrant) Date: November 14, 2001 By: /s/ Mark W. Reynolds ----------------- ------------------------------ Mark W. Reynolds Vice President, Finance (Chief Accounting Officer and a duly authorized officer) 12