-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FYiANqG7ofldMD9ZDAL5Jkkyaj7copfKPhz1EuBOKTKW/YCASeLRgyiPL26S4pLa oTRi//G91UjdzVvAX738Xw== 0000950144-99-000836.txt : 19990204 0000950144-99-000836.hdr.sgml : 19990204 ACCESSION NUMBER: 0000950144-99-000836 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYTRX CORP CENTRAL INDEX KEY: 0000799698 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 581642740 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-15327 FILM NUMBER: 99519882 BUSINESS ADDRESS: STREET 1: 154 TECHNOLOGY PKWY STREET 2: TECHNOLOGY PARK/ATLANTA CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 4043689500 MAIL ADDRESS: STREET 1: 154 TECHNOLOGY PARKWAY CITY: NORCROSS STATE: GA ZIP: 30092 10-Q/A 1 CYTRX CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ------------------ 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 Identification No.) of incorporation or organization) 154 Technology Parkway, Norcross, Georgia 30092 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (770) 368-9500 - -------------------------------------------------------------------------------- (Registrant's telephone number) 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 October 20, 1998: 7,666,172. 2 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, 1998 (unaudited) and December 31, 1997 3 Condensed Consolidated Statements of Operations (unaudited) for the Three Month and Nine Month Periods Ended September 30, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Month Periods Ended September 30, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 13 SIGNATURES 13
2 3 Part I - FINANCIAL INFORMATION Item 1. - Financial Statements CYTRX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1998 December 31, 1997 ------------------ ----------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 13,371,841 $ 5,895,008 Accounts receivable 169,589 1,917,013 Notes receivable 4,300,000 -- Inventories 8,973 2,272,798 Other current assets 27,509 29,157 ------------ ------------ Total current assets 17,877,912 10,113,976 Property and equipment, net 240,543 4,713,586 Other assets: Long-term investments (restricted) -- 5,326,647 Notes receivable, net of reserve -- 400,000 Acquired developed technology, net 3,274,356 3,454,356 Other assets 775,593 897,430 ------------ ------------ Total other assets 4,049,949 10,078,433 ------------ ------------ Total assets $ 22,168,404 $ 24,905,995 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 143,261 $ 1,273,303 Accrued liabilities 740,800 1,599,628 Unearned revenue 268,372 166,187 ------------ ------------ Total current liabilities 1,152,433 3,039,118 6% Convertible debentures -- 2,000,000 Minority interest in Vaxcel, Inc. 470,636 618,482 Commitments Stockholders' equity: Preferred stock, $.01 par value, 1,000 shares authorized, including 1000 shares of Series A Junior Participating Preferred Stock; no shares issued and outstanding -- -- Common stock, $.001 par value, 18,750,000 shares authorized; 8,226,025 and 7,986,441 shares issued at September 30, 1998 and December 31, 1997, respectively 8,226 7,986 Additional paid-in capital 66,394,625 65,793,491 Treasury stock, at cost (555,154 shares held at September 30, 1998 and December 31, 1997, respectively) (2,198,533) (2,198,533) Accumulated deficit (43,658,983) (44,354,549) ------------ ------------ Total stockholders' equity 20,545,335 19,248,395 ------------ ------------ Total liabilities and stockholders' equity $ 22,168,404 $ 24,905,995 ============ ============
See accompanying notes. 3 4 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Month Period Ended Nine Month Period Ended September 30, September 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenues: Net sales $ 221,337 $ 254,457 $ 694,053 $ 704,657 Interest income 323,687 176,932 757,169 640,685 Collaborative and grant income 166,120 198,950 635,747 304,939 Other income 100,182 91,295 193,998 265,272 ----------- ----------- ----------- ----------- 811,326 721,634 2,280,967 1,915,553 Expenses: Cost of sales 71,509 139,047 183,394 279,212 Research and development 1,893,305 1,481,116 5,685,577 3,148,935 Selling, general and administrative 865,698 861,991 2,594,215 2,508,331 Acquired incomplete research and development -- -- -- 951,017 ----------- ----------- ----------- ----------- 2,830,512 2,482,154 8,463,186 6,887,495 ----------- ----------- ----------- ----------- Loss from continuing operations before minority interest and extraordinary item (2,019,186) (1,760,520) (6,182,219) (4,971,942) Minority interest (31,910) (66,857) (147,846) (192,141) ----------- ----------- ----------- ----------- Loss from continuing operations before extraordinary item (1,987,276) (1,693,663) (6,034,373) (4,779,801) Income from discontinued operations 9,159 394,652 7,055,059 545,138 ----------- ----------- ----------- ----------- Income (loss) before extraordinary item (1,978,117) (1,299,011) 1,020,686 (4,234,663) Extraordinary item: Loss on early extinguishment of debt -- -- (325,120) -- ----------- ----------- ----------- ----------- Net income (loss) $(1,978,117) $(1,299,011) $ 695,566 $(4,234,663) =========== =========== =========== =========== Basic and diluted income (loss) per common share: Continuing operations $ (0.26) $ (0.23) $ (0.79) $ (0.64) Discontinued operations -- 0.05 0.93 0.07 Extraordinary item -- -- (0.04) -- ----------- ----------- ----------- ----------- Net income (loss) $ (0.26) $ (0.18) $ 0.09 $ (0.57) =========== =========== =========== =========== Basic and diluted weighted average shares outstanding 7,669,440 7,416,979 7,617,673 7,422,488
See accompanying notes. 4 5 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Month Period Ended September 30, ------------------------------------- 1998 1997 ------------ ----------- Cash flows from operating activities: Net loss $ 695,566 $(4,234,663) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 401,769 522,454 Gain on sales of subsidiaries (7,009,305) -- Gain on sale of real estate (434,454) -- Extraordinary loss on early extinguishment of debt 325,120 -- Charge for acquired research and development -- 951,017 Minority interest in net loss (147,846) (192,141) Net change in assets and liabilities 1,283,758 (429,522) ------------ ----------- Total adjustments (5,580,958) 851,808 ------------ ----------- Net cash used by operating activities (4,885,392) (3,382,855) Cash flows from investing activities: Decrease in short-term investments -- 4,366,767 Decrease in long-term investments 5,326,647 5,096,353 Capital expenditures and retirements, net (29,071) (188,795) Net proceeds from sales of subsidiaries 4,358,985 -- Net proceeds from sale of real estate 4,258,747 -- Net cash paid for acquisition -- (1,239,355) ------------ ----------- Net cash provided by investing activities 13,915,308 8,034,970 Cash flows from financing activities: Net proceeds from issuance of common stock 96,917 116,272 Redemption of debt (1,650,000) -- Purchase of treasury stock -- (176,864) ------------ ----------- Net cash used by financing activities (1,553,083) (60,592) ------------ ----------- Net increase in cash and cash equivalents 7,476,833 4,591,523 Cash and cash equivalents at beginning of period 5,895,008 1,604,003 ------------ ----------- Cash and cash equivalents at end of period $ 13,371,841 $ 6,195,526 ============ ===========
See accompanying notes. 5 6 CYTRX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) 1. DESCRIPTION OF COMPANY AND BASIS OF PRESENTATION CytRx Corporation ("CytRx") is a biopharmaceutical company focused on the development and commercialization of high-value therapeutics. CytRx's lead product is FLOCOR(TM), now in pivotal Phase III clinical trials, for the treatment of acute sickle cell crisis. CytRx is also developing FLOCOR for acute respiratory disorders and plans to expand into other vascular disorders such as shock and stroke. CytRx currently has a research pipeline with opportunities in the area of infectious disease, gene and drug delivery, vaccines and animal feed additives. Reference herein to "the Company" includes CytRx and its majority-owned subsidiaries. The accompanying condensed consolidated financial statements at September 30, 1998 and for the three month and nine month periods ended September 30, 1998 and 1997 include the accounts of CytRx together with those of its subsidiaries and 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. All significant intercompany transactions have been eliminated. 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, 1997. Certain prior year amounts have been reclassified to conform to the 1998 financial statement presentation. As more thoroughly discussed in Note 4, certain divested operations of the Company are presented as discontinued operations for all periods presented. 2. INVENTORIES Inventories at December 31, 1997 were comprised primarily of finished cattle growth promotant products related to the discontinued operations of CytRx Animal Health, Inc. (formerly VetLife, Inc.) ("CAH"). 3. 6% CONVERTIBLE DEBENTURES In October 1997, the Company privately placed with certain investors $2,000,000 of convertible notes (the "Debentures") maturing in October, 2001. The Debentures were convertible into shares of CytRx Common Stock at a price of the lesser of (a) 85% of the average 6 7 closing bid price for the 10 days preceding the conversion, or (b) $5.68 per share. The provisions for conversion of the Debentures allowed the Company, at its discretion, to disallow conversions below $4.00 per share by redeeming the amount attempted to be converted at a 10% premium. In February and March 1998, $500,000 of the Debentures were converted into 204,104 shares of common stock. In February and May 1998, $1,500,000 of Debentures were redeemed by the Company. Total redemption premiums of $150,000 were paid to redeem the Debentures. In addition, $175,000 of previously capitalized debt issue costs were written off. The redemption premiums and debt issue costs written off are reflected as an extraordinary item in the statement of operations as loss on early extinguishment of debt. At September 30, 1998 there were no remaining outstanding Debentures. 4. DISCONTINUED OPERATIONS Sale of Pharmaceutical Services Operations In February 1998, CytRx's wholly-owned subsidiary, Proceutics, Inc. consummated a sale of substantially all of its non-real estate assets to Oread Laboratories, Inc. ("Oread") for approximately $2.1 million. Proceutics retained its real estate assets consisting of a laboratory building which it leased to Oread. The laboratory building was subsequently sold in May 1998 (see Note 5). Prior to consummation of this transaction, Proceutics provided preclinical development services to the pharmaceutical industry. Net income (loss) associated with Proceutics included in income (loss) from discontinued operations was $1,387,000 for the nine months ended September 30, 1998, as compared to $(280,000) in 1997. A gain related to the sale of approximately $782,000 is included in income from discontinued operations for the nine months ended September 30, 1998, as well as a $434,000 gain on the sale of Proceutics' real estate assets (see Note 5). A summary of the assets and liabilities of Proceutics which were sold, and which are included in the consolidated balance sheet at December 31, 1997 are as follows (in thousands): Current assets $ 721 Property and equipment, net 696 ------ Total assets $1,417 Total liabilities $ 228
Sale of Cattle Marketing Operations In April 1998, CytRx's wholly-owned subsidiary, CAH, consummated a sale of substantially all of its assets related to its cattle marketing operations to VetLife, LLC ("VL LLC") (an unaffiliated company) for a total purchase price consisting of: (i) a cash payment of $3,500,000, subject to certain working capital adjustments, (ii) an unsecured, subordinated promissory note in the principal amount of $4,000,000 bearing interest at an annual rate of 12%, and (iii) certain contingent payments based on future sales of specified products of VL LLC and its affiliates that, if made in full, could total up to $5,500,000. CAH retained the $5.4 million in investments that were pledged to secure a letter-of-credit, as well as the rights to certain 7 8 technologies licensed from CytRx. Prior to consummation of this transaction, CAH was engaged in marketing and distributing products to enhance North American beef cattle productivity. Net income associated with the discontinued operations of CAH included in income from discontinued operations was $5,668,000 for the nine months ended September 30, 1998, as compared to $825,000 in 1997. A gain related to the sale of $6,228,000 is included in income from discontinued operations for the nine month period ended September 30, 1998. A summary of the assets and liabilities of CAH which were sold and which are included in the consolidated balance sheet at December 31, 1997 are as follows (in thousands): Current assets $ 3,695 Property and equipment, net 100 ------- Total assets $ 3,795 ======= Total liabilities $ 2,048 =======
5. SALE OF REAL ESTATE In May 1998, CytRx and Proceutics consummated the sale of the two buildings owned by them at 150 and 154 Technology Parkway, Norcross, Georgia, to Alexandria Real Estate Equities, Inc. ("Alexandria") for $4.5 million. Proceutics' rights and obligations under the lease to Oread (See Note 4) were assigned to Alexandria, and CytRx leased the building at 154 Technology Parkway from Alexandria. The CytRx lease is for a period of ten years, with base annual rent of $148,500, escalating 4% annually. CytRx will also be responsible for all operating expenses for the property. The Company recorded a gain of $434,000 for the sale of the Proceutics building which was recognized during the second quarter. A gain of $279,000 on the sale/leaseback of the CytRx building was deferred and will be amortized over the ten year lease period. 8 9 Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources At September 30, 1998 the Company had cash and cash equivalents of $13.4 million and net assets of $20.5 million, compared to $5.9 million and $19.2 million, respectively, at December 31, 1997. Working capital totaled $16.7 million at September 30, 1998, compared to $7.1 million at December 31, 1997. At December 31, 1997 the Company also had $5.3 million in investments (classified as other assets in the accompanying balance sheets) held as collateral pursuant to a letter-of-credit arrangement which was dissolved in April 1998, thereby releasing the restriction on such investments. Management believes that cash and cash equivalents on hand, combined with interest income and operating revenues, will be sufficient to satisfy the Company's projected liquidity and working capital needs through 1999, but it is likely that additional funding will be required to complete the necessary testing and data collection procedures prescribed by the U.S. Food and Drug Administration ("FDA") for the commercialization of any products for human use. Definitive statements as to the time required and costs involved in reaching certain objectives for the Company's products are difficult to project due to the uncertainties of the medical research field. Requirements could vary depending upon the results of research, competitive and technological developments, and the time and expense required for governmental approval of products, some of which factors are beyond management's control. CytRx anticipates that it may raise funds through equity offerings. Additional funding for research and development expenditures may be obtained through joint ventures and product licensing arrangements with other companies. During 1997 and 1998, the Company received federal government funding for certain research and development activities via several Small Business Innovative Research (SBIR) grants. Most recently, the Company received a grant from the U.S. Food and Drug Administration's Division of Orphan Drug Development to support CytRx's Phase III clinical trial of FLOCOR. This grant will provide approximately $400,000 over two years to help defray the overall costs of the study. The Company intends to continue to seek government assistance for its product development efforts. In February 1998, CytRx's wholly-owned subsidiary, Proceutics, Inc. consummated a sale of substantially all of its non-real estate assets to Oread Laboratories, Inc. ("Oread") for approximately $2.1 million. Proceutics retained its real estate assets and leased its building at 150 Technology Parkway to Oread. (See Note 4 to Financial Statements.) In May 1998, CytRx and Proceutics sold the two buildings owned by them at 150 and 154 Technology Parkway, Norcross, Georgia, to Alexandria Real Estate Equities, Inc. for $4.5 million. (See Note 5 to Financial Statements). In April 1998, CytRx's wholly-owned subsidiary, CytRx Animal Health, Inc. ("CAH") (formerly VetLife, Inc.) consummated a sale of substantially all of its assets related to its cattle 9 10 marketing operations for approximately $7.5 million in cash and a note payable, plus contingent payments of up to an additional $5.5 million. (See Note 4 to Financial Statements). The Company also retained the $5.4 million in investments owned by CAH that were pledged to secure a letter-of-credit. At December 31, 1997 the Company had net operating loss carryforwards for income tax purposes of approximately $44.6 million, which will expire in 2000 through 2012 if not utilized. The Company also has research and development credits available to reduce income taxes, if any, of approximately $1.1 million which will expire in 2000 through 2010 if not utilized. Based on an assessment of all available evidence including, but not limited to, the Company's limited operating history and lack of profitability, uncertainties of the commercial viability of the Company's technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred tax valuation allowance has been recorded against these assets. Results of Operations The following table presents the breakdown of consolidated results of operations by operating unit for the three month and nine month periods ended September 30, 1998 and 1997.
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- (in thousands) 1998 1997 1998 1997 ---- ---- ---- ---- Continuing Operations: CytRx* $(1,763) $(1,226) $(4,999) $(2,775) Vaxcel (256) (535) (1,183) (2,197) Minority interest 32 67 148 192 ------- ------- ------- ------- (1,987) (1,694) (6,034) (4,780) Discontinued operations: Proceutics*** 24 25 1,387 (280) CytRx Animal Health** (15) 370 5,668 825 ------- ------- ------- ------- 9 395 7,055 545 Extraordinary item -- -- (325) -- ------- ------- ------- ------- Net income (loss) $(1,978) $(1,299) $ 696 $(4,235) ======= ======= ======= =======
* Includes continuing operations of CytRx Animal Health. ** Nine month period includes a $6,228,000 gain on the sale of CAH's cattle marketing operations. *** Nine month period includes a $434,000 gain on the sale of real estate assets and a $782,000 gain on the sale of Proceutics' pharmaceutical services operations. 10 11 Consolidated net sales from continuing operations for the three month and nine month periods ended September 30, 1998 were $221,000 and $694,000, respectively, as compared to $254,000 and $705,000, respectively, in 1997. Net sales consist primarily of sales of TiterMax(R) research adjuvant and of service revenues derived from the Company's small group of human resource professionals marketing their services under the name of Spectrum Recruitment Research ("Spectrum"). Cost of sales from continuing operations was $72,000 (32% of net sales) during the third quarter of 1998 as compared to $139,000 (55% of net sales) in 1997. For the nine month period ended September 30 cost of sales was $183,000 (26% of net sales) in 1998 versus $279,000 (40% of net sales) in 1997. Fluctuations in cost of sales are due to the mix of sales between TiterMax and Spectrum, and to fluctuations in Spectrum's use of external consultants. Although the TiterMax and Spectrum operations are profitable, the Company is not dependent on the cash flow generated by these operations. Interest income was $324,000 and $757,000 during the three month and nine month periods ended September 30, 1998 as compared to $177,000 and $641,000 for the same periods in 1997. Fluctuations in interest income generally correspond with changes in cash and investment balances. Collaborative and grant income was $166,000 and $636,000 during the three month and nine month periods ended September 30, 1998 as compared to $199,000 and $305,000 for the same periods in 1997. These amounts relate primarily to research funding pursuant to federal grants. Contributing to the overall increase for 1998 was a $200,000 grant from the Orphan Drug Product Development Division of the FDA to support the Company's Phase III clinical trial for FLOCOR. The Company recognizes revenue related to these grants as the related costs are incurred, which can be highly variable depending upon the scope of work which may be subcontracted to third parties. The costs associated with these arrangements approximate the revenues recorded and are reflected in research and development expense. Other income was $100,000 and $194,000 during the three month and nine month periods ended September 30, 1998 as compared to $91,000 and $265,000 for the same periods in 1997. For the three month period ended September 30, 1998, other income includes a $75,000 license fee recorded by Vaxcel, Inc. (a majority-owned subsidiary of CytRx) related to the license of Vaxcel's proprietary microencapsulation technologies and related intellectual property to Heska Corporation, for use in Heska's development of oral vaccines for companion animals. Prior to the third quarter of 1998, other income included intercompany service fees to CytRx Animal Health and Proceutics. Research and development expenditures from continuing operations for the three month period ended September 30, 1998 were $1,893,000 as compared to $1,481,000 in 1997. For the nine month period research and development expenditures totaled $5,686,000 as compared to $3,149,000 in 1997. Research and development expenditures increased in 1998 as a result of the Company's development activities for FLOCOR, including the initiation in March 1998 of a Phase III clinical trial for the treatment of acute sickle cell crisis. For the nine month period ended September 30, 1997, the Company recognized a $951,000 charge for acquired incomplete 11 12 research and development as a result of Vaxcel's acquisition of Zynaxis, Inc. This charge is reported as a separate line item on the accompanying Statement of Operations. Selling, general and administrative expenses for the three month period ended September 30, 1998 were $866,000 as compared to $862,000 in 1997. For the nine month period selling, general and administrative expenses totaled $2,594,000 as compared to $2,508,000 in 1997. Fluctuations in selling, general and administrative expenses are due to normal business activities. Management believes that inflation had no material impact on the Company's operations during the nine month period ended September 30, 1998 or on the three year period ended December 31, 1997. For the nine month period ended September 30, 1998, the Company reported an extraordinary loss on early extinguishment of debt of $325,000. This is a non-recurring item related to redemption of the Company's outstanding Debentures (see Note 3 to Financial Statements). Total redemption premiums of $150,000 were paid to redeem the Debentures and $175,000 of previously capitalized debt issue costs were written off. Year 2000 Issue Introduction The term "Year 2000 issue" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software have historically used only two digits to identify the year in a date, often meaning that the computer will fail to distinguish dates in the "2000's" from dates in the "1900's." These problems may also arise from other sources as well, such as the use of special codes and conventions in software that make use of the date field. State of Readiness The Company has developed and is implementing a comprehensive plan (the "Year 2000 Plan") for the Company to become Year 2000 ready by the middle of the fourth quarter 1999. The Year 2000 Plan covers the following Company systems (collectively, the "Systems"): - the Company's business-critical information technology and operating systems ("Critical IT Systems") which are comprised substantially of commercial off-the-shelf software and other third party software and hardware relating primarily to financial operations and reporting, including accounts payable, - the Company's non-critical information technology and operating systems ("Non-Critical IT Systems") which also are substantially comprised of commercial off-the-shelf software and other third party software and hardware relating to, among others, spreadsheet, word processing, and supporting and related operating systems; - the systems of the Company's major vendors and other material service providers ("Third Party Systems"); and - the Company's non-information technology systems, including embedded technology ("Non-IT Systems") relating to, among others, security systems and HVAC. The Year 2000 Plan consists of four phases: (i) awareness, (ii) assessment, (iii) remediation, and (iv) creation of contingency plans in the event of year 2000 failures. The Company has completed the awareness phase of its Year 2000 Plan for all of its Systems, and is well under way toward completing the assessment phase. As part of the assessment phase, the Company has polled substantially all of the third parties who provide material services to the Company regarding each of such third party's Year 2000 compliance plan and state of readiness. The Company has received responses regarding Year 2000 compliance from most of such third parties, all of whom have assured the Company that their hardware and/or software is or will be Year 2000 compliant. The Company is actively seeking responses from the remainder of such third parties. The initial actions in the remediation phase have already commenced in that the Company, during 1998, upgraded a significant portion of its desktop computer systems as part of its normal replacement program. The Company intends to schedule any additional required upgrades or replacements regarding its Systems beginning in the second quarter of 1999 and ending during the fourth quarter of 1999. Costs To date, the Company has not incurred significant costs in connection with the implementation of its Year 2000 Plan. Future costs may include, among others, the engagement of outside consultants, upgrades or replacements of hardware and software, and implementation of viable contingency plans. The Company estimates such future costs will not exceed $25,000. The Company expenses costs associated with the Year 2000 Plan as they are incurred. Risks and Contingency Plans The failure to remediate a material Year 2000 problem or develop and implement a viable contingency plan could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's business, financial condition and results of operations. Due to the general uncertainty inherent in the Year 2000 issue and the current phase in which the Company is in of its Year 2000 Plan, the Company is currently unable to determine the most reasonably likely worst case Year 2000 scenarios or whether the Year 2000 issue will have a material impact on the Company. As the Company progresses in its Year 2000 Plan, the level of uncertainty about the impact of the Year 2000 issue on the Company will be reduced and the Company should be better positioned to assess and develop viable contingency plans and disclose the nature and extent of material risks to the Company as a result of any failure to remediate a Year 2000 problem which would require implementation of a contingency plan. The above statements regarding the Company's plans and expectations for future financing are forward-looking statements that are subject to a number of risks and uncertainties. The Company's ability to obtain future financings through joint ventures, product licensing arrangements, equity financings or otherwise is subject to market conditions and the Company's ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to the Company. There can be no assurance that the Company will be able to obtain future financing from these sources. Additionally, depending upon the outcome of the Company's fund raising efforts via its subsidiaries discussed above, the accompanying financial information may not necessarily be indicative of future operating results or future financial condition. 12 13 PART II-- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit Number Description ------- ----------- 27.1 Financial Data Schedule (for SEC use only) 27.2 Financial Data Schedule (Restated 1997) (for SEC use only)
(b) Reports on Form 8-K On May 1, 1998, the Registrant filed a Current Report on Form 8-K related to the sale of substantially all the assets of CytRx Animal Health, Inc. (formerly VetLife, Inc.) ("CAH"). Included in this filing were the Registrant's financial statements as of December 31, 1997 and for the three years then ended, restated to reflect CAH as a discontinued operation. This filing was amended on Form 8-K/A on June 19, 1998 and again on July 24, 1998. On May 26, 1998, the Registrant filed a Current Report on Form 8-K related to the sale of the real estate assets of Proceutics, Inc. and the sale/leaseback of the real estate assets of CytRx Corporation. This filing was amended on Form 8-K/A on June 19, 1998 and again on July 24, 1998. 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: February 2, 1999 By: /s/ Mark W. Reynolds ---------------- -------------------------------- Mark W. Reynolds Chief Financial Officer (Chief Accounting Officer and a duly authorized officer) 13 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 13,371,841 0 4,469,589 0 8,973 17,877,912 905,304 (664,761) 22,168,404 1,152,433 0 0 0 8,226 20,537,109 22,168,404 694,053 2,280,967 183,394 183,394 8,279,792 0 45,888 (6,034,373) 0 (6,034,373) 7,055,059 (325,120) 0 695,566 .09 .09
EX-27.2 3 FINANCIAL DATA SCHEDULE (RESTATED 1997)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 6,195,526 5,906,341 2,687,381 0 508,449 15,463,846 7,282,267 (2,483,102) 24,474,638 3,400,520 0 0 0 7,978 20,397,312 24,474,638 704,657 1,915,553 279,212 279,212 6,608,283 0 0 (4,779,801) 0 (4,779,801) 545,138 0 0 (4,234,663) (.57) (.57)
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