-----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, PjZpD8vDlGE7wLw9ZcDCuRo627MFpEk6G8QTzFV/3gF/mfDr/yuTweOgiZi3D0YM xnwgXwazCxqTj/V8u6fMlg== 0000950144-99-005957.txt : 19990517 0000950144-99-005957.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950144-99-005957 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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 SEC ACT: SEC FILE NUMBER: 000-15327 FILM NUMBER: 99621649 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 1 CYTRX CORPORATION 1 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 March 31, 1999 -------------- OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ Commission file 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 May 13, 1999: 7,632,854. 2 CYTRX CORPORATION Form 10-Q Table of Contents
Page ---- PART I. FINANCIAL INFORMATION Item 1 Financial Statements: Condensed Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations (unaudited) for the Three Month Periods Ended March 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Month Periods Ended March 31, 1999 and 1998 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 10 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 11 SIGNATURES 11
2 3 Part I - FINANCIAL INFORMATION Item 1. - Financial Statements CYTRX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1999 1998 ------------ ------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 12,361,398 $ 8,855,375 Short-term investments -- 6,417,066 Accounts receivable 170,017 83,249 Note receivable 300,000 300,000 Inventories 8,308 10,935 Other current assets 110,347 10,377 ------------ ------------ Total current assets 12,950,070 15,677,002 Property and equipment, net 348,031 195,030 Other assets: Acquired developed technology, net 600,000 600,000 Other assets 70,978 169,536 ------------ ------------ Total other assets 670,978 769,536 ------------ ------------ Total assets $ 13,969,079 $ 16,641,568 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 506,206 $ 540,089 Accrued liabilities 1,313,972 1,409,034 ------------ ------------ Total current liabilities 1,820,178 1,949,123 Minority interest in Vaxcel, Inc. -- 3,897 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, 18,750,000 shares authorized; 8,256,065 and 8,236,926 shares issued at March 31, 1999 and December 31, 1998, respectively 8,256 8,237 Additional paid-in capital 67,168,838 66,423,577 Treasury stock, at cost (633,816 and 625,816 shares held at March 31, 1999 and December 31, 1998, respectively) (2,279,238) (2,270,238) Accumulated deficit (52,748,955) (49,473,028) ------------ ------------ Total stockholders' equity 12,148,901 14,688,548 ------------ ------------ Total liabilities and stockholders' equity $ 13,969,079 $ 16,641,568 ============ ============
See accompanying notes. 3 4 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Month Period Ended March 31, ---------------------------------- 1999 1998 ----------- ----------- (restated) Revenues: Net sales $ 202,040 $ 217,965 Interest income 176,109 136,800 Grant income 27,461 -- Other 49,769 85,165 ----------- ----------- 455,379 439,930 Expenses: Cost of sales 80,677 73,184 Research and development 2,358,061 1,034,438 Selling, general and administrative 1,200,873 510,826 Interest -- 123,040 ----------- ----------- 3,639,611 1,741,488 ----------- ----------- Loss from continuing operations (3,184,232) (1,301,558) Income (loss) from discontinued operations (95,592) 370,779 Minority interest in discontinued operations (3,897) (63,256) ----------- ----------- Net loss $(3,275,927) $ (867,523) =========== =========== Basic and diluted income (loss) per common share: Continuing operations $ (0.42) $ (0.17) Discontinued operations (0.01) 0.05 =========== =========== Net loss $ (0.43) $ (0.12) =========== =========== Basic and diluted weighted average shares outstanding 7,623,394 7,516,319
See accompanying notes. 4 5 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Month Period Ended March 31, ---------------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net loss $(3,275,927) $ (867,523) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 29,760 161,206 Stock option expense 726,621 -- Gain on sale of business -- (831,038) Minority interest in net loss of subsidiary (3,897) (63,256) Net change in assets and liabilities (214,498) 168,402 ----------- ----------- Total adjustments 537,986 (564,686) ----------- ----------- Net cash used by operating activities (2,737,941) (1,432,209) Cash flows from investing activities: Decrease in short-term investments 6,417,066 -- Capital expenditures, net (182,761) (25,083) Net proceeds from sale of business -- 1,528,708 ----------- ----------- Net cash provided by investing activities 6,234,305 1,503,625 Cash flows from financing activities: Net proceeds from issuance of common stock 18,659 54,583 Purchase of treasury stock (9,000) -- Redemption of convertible debt -- (400,000) ----------- ----------- Net cash provided (used) by financing activities 9,659 (345,417) ----------- ----------- Net increase (decrease) in cash and cash equivalents 3,506,023 (274,001) Cash and cash equivalents at beginning of period 8,855,375 5,895,008 ----------- ----------- Cash and cash equivalents at end of period $12,361,398 $ 5,621,007 =========== ===========
See accompanying notes. 5 6 CYTRX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 (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 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(TM) for acute respiratory disorders and plans to expand its development for other vascular disorders such as shock and stroke. CytRx is also currently engaged in research in the areas of infectious disease, gene and drug delivery, vaccines, and animal feed additives. The accompanying condensed consolidated financial statements at March 31, 1999 and for the three month periods ended March 31, 1999 and 1998 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. 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, 1998. Certain prior year amounts have been reclassified to conform to the 1999 financial statement presentation. The operations of Proceutics, Inc. ("Proceutics"), CytRx Animal Health, Inc. ("CytRx Animal Health") (formerly VetLife, Inc.), and Vaxcel, Inc. ("Vaxcel") are presented as discontinued operations for all periods presented. 2. SALE OF TECHNOLOGY In January 1999, Vaxcel entered into an agreement with Innovax Corporation ("Innovax") giving Innovax the option to purchase the rights to Vaxcel's PLG microencapsulation technology for an aggregate purchase price of $600,000. Innovax paid a nonrefundable option fee of $200,000, with an additional $400,000 due upon the exercise of the option. Innovax also paid a total of $20,000 for extensions of the option period. On April 1, 1999 Innovax exercised its option and the rights to such technology were assigned by Vaxcel to Innovax. The Company will record this transaction in the second quarter of 1999 as a sale of its Acquired Developed Technology, valued at $600,000, and therefore will not record a gain or loss 6 7 on the transaction. The $20,000 in option extension fees paid by Innovax is included in the discontinued operations of Vaxcel in the accompanying Statement of Operations. The $400,000 due upon exercise of the option was paid on April 1, 1999. 3. SEGMENT REPORTING
Continuing Operations Discontinued Operations -------------------------------------------------------------------------------------------- Total Cattle Total Research Recruiting Product Continuing Marketing Pharmaceutical Vaccine Discontinued (in thousands) Products Services Development Operations Operations Services Development Operations - -------------------------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, 1999: Sales to external customers $136 $ 66 $ -- $ 202 $ -- $ -- $ -- $ -- Intersegment sales -- -- -- -- -- -- -- -- Segment profit (loss) 83 (1) (3,266) (3,184) -- -- (92) (92) Total assets -- -- 13,164 13,164 -- -- 805 805 Three Months Ended March 31, 1998: Sales to external customers 117 101 -- 218 3,790 407 -- 4,197 Intersegment sales -- -- -- -- -- 143 -- 143 Segment profit (loss) 60 21 (1,383) (1,302) (120) 996 (442) 434 Total assets -- -- 5,395 5,395 7,670 4,669 4,877 17,216
7 8 Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources At March 31, 1999 the Company had cash and cash equivalents and short-term investments of $12.4 million and net assets of $12.1 million, compared to $15.3 million and $14.7 million, respectively, at December 31, 1998. Working capital totaled $11.1 million at March 31, 1999, compared to $13.7 million at December 31, 1998. 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 Small Business Innovative Research (SBIR) grants. Most recently, in 1998 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(TM). This grant will provide approximately $400,000 over two years, $200,000 of which was received during 1998, to help defray the overall costs of the study. The Company intends to continue to seek government assistance for its product development efforts. 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. 8 9 Results of Operations The Company recorded a net loss of $3,238,000 for the three month period ended March 31, 1999 as compared to $868,000 for 1998. Loss from continuing operations was $3,146,000 and $1,302,000 in 1999 and 1998, respectively. Net sales from continuing operations, which consist primarily of sales of TiterMax research adjuvant and service revenues from Spectrum Recruitment Research, were $202,000 and $218,000 during the three months ended March 31, 1999 and 1998, respectively. Cost of product sales and service revenues was $81,000 in 1999 versus $73,000 in 1998. Interest income from continuing operations was $176,000 and $137,000 during the three months ended March 31, 1999 and 1998, respectively. The variance between years generally corresponds to fluctuating cash and investment balances. Grant income was $27,000 in 1999 versus $-0- in 1998. Other income was $50,000 and $85,000 in 1999 and 1998, respectively, and relates to administrative and facilities costs allocated by CytRx to its discontinued subsidiaries. The related costs are included in selling, general and administrative expenses. The decrease from 1998 to 1999 is reflective of the discontinuance of the Proceutics and CytRx Animal Health operations in early 1998. Research and development expenditures from continuing operations were $2,358,000 and $1,034,000 during the three months ended March 31, 1999 and 1998, respectively. Research and development expenditures have increased primarily as a result of the Company's development activities for FLOCOR(TM), including the initiation of a pivotal Phase III trial in March 1998. The Company expects patient enrollment in the Phase III trial to be completed during the second half of 1999, with the final statistical analysis of the study completed by the end of 1999. Selling, general and administrative expense from continuing operations were $474,000 and $511,000 during the three months ended March 31, 1999 and 1998, respectively. The decrease includes a reduction in administrative staff requirements as a result of the Company's divestiture of its subsidiary operations. Interest expense of $123,000 during the three month period ended March 31, 1998 relates to convertible debentures which were redeemed and/or converted during 1998. During 1998, the Company granted options and warrants to certain employees which contain vesting criteria based on stock price performance. The Company has also granted options and warrants to purchase its common stock to certain consultants in exchange for consulting services. During the first quarter of 1999, certain vesting criteria of these options and warrants were achieved, resulting in an aggregate non-cash charge to compensation expense and consulting expense of $727,000. Net income (loss) from discontinued operations, net of minority interest, was $(92,000) and $434,000 during the three months ended March 31, 1999 and 1998, respectively. The operations of Proceutics and CytRx Animal Health were sold during 1998, thus the results of their operations have been presented as discontinued operations. During 1998, the Company adopted 9 10 a plan to dispose of the research and development activities of Vaxcel and has also presented its results of operations as discontinued operations. The following table presents the breakdown of income (loss) from discontinued operations:
Three Months Ended March 31, ---------------------------- 1999 1998 ---------------------------- Vaxcel, net of minority interest $ (92,000) $(443,000) Proceutics -- 996,000 CytRx Animal Health -- (119,000) ---------------------------- Income (loss) from discontinued operations $ (92,000) $ 434,000 ============================
Year 2000 Issue 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. There have been no changes in the Company's state of readiness or contingency plans from that disclosed in its Annual Report on Form 10-K for the year ended December 31, 1998. No costs have been incurred related to the Year 2000 Issue for the three months ended March 31, 1999. Item 3. - Quantitative and Qualitative Disclosures About Market Risk The have been no changes in the Company's assessment of its market risk from that disclosed in its Form 10-K for the year ended December 31, 1998. 10 11 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 1998) (for SEC use only)
(b) Reports on Form 8-K None. 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: May 13, 1999 By: /s/ Mark W. Reynolds ------------ ------------------------------ Mark W. Reynolds Chief Financial Officer (Chief Accounting Officer and a duly authorized officer) 11 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF CYTRX CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 12,361,398 0 470,017 0 8,308 12,950,070 982,200 (634,169) 13,969,079 1,820,178 0 0 0 8,256 12,140,645 13,969,079 202,040 455,379 80,677 80,677 3,558,934 0 0 (3,184,232) 0 (3,184,232) (91,695) 0 0 (3,275,927) (.43) (.43)
EX-27.2 3 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CYTRX CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 5,621,007 0 1,481,039 0 1,340,008 8,685,718 6,202,320 (2,232,554) 22,610,613 2,015,475 1,100,000 0 0 8,206 18,931,706 22,610,613 217,965 439,930 73,184 73,184 1,668,304 0 123,040 (1,301,558) 0 (1,301,558) 434,035 0 0 (867,532) (.12) (.12)
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