<PAGE> 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, 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 May 12, 1998: 7,662,349.
<PAGE> 2
CYTRX CORPORATION
Form 10-Q
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997 3
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month Periods Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Three Month Periods Ended March 31, 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 12
SIGNATURES 12
</TABLE>
2
<PAGE> 3
Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,621,007 $ 5,895,008
Accounts receivable, net 893,739 1,917,013
Other receivables 587,300 --
Inventories 1,340,008 2,272,798
Other current assets 243,664 29,157
------------ ------------
Total current assets 8,685,718 10,113,976
Property and equipment, net 3,969,766 4,713,586
Other assets:
Long-term investments (restricted) 5,359,697 5,326,647
Notes receivable 400,000 400,000
Acquired developed technology, net 3,394,356 3,454,356
Other assets 801,076 897,430
------------ ------------
Total other assets 9,955,129 10,078,433
------------ ------------
Total assets $ 22,610,613 $ 24,905,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,063,623 $ 1,273,303
Accrued liabilities 951,852 1,599,628
Unearned revenue -- 166,187
------------ ------------
Total current liabilities 2,015,475 3,039,118
6% Convertible debentures 1,100,000 2,000,000
Minority interest in Vaxcel, Inc. 555,226 618,482
Commitments
Stockholders' equity:
Preferred stock, $.01 par value, 1,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.001 par value, 18,750,000 shares authorized;
8,206,503 and 7,986,441 shares issued at March 31, 1998
and December 31, 1997, respectively 8,206 7,986
Additional paid-in capital 66,352,311 65,793,491
Treasury stock, at cost ( 555,154 shares held at
March 31, 1998 and December 31, 1997, respectively) (2,198,533) (2,198,533)
Accumulated deficit (45,222,072) (44,354,549)
------------ ------------
Total stockholders' equity 18,939,912 19,248,395
------------ ------------
Total liabilities and stockholders' equity $ 22,610,613 $ 24,905,995
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended March 31,
----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Net sales $ 217,965 $ 227,311
Interest income 143,850 244,015
Collaborative and grant income 16,483 92,667
Other 62,665 85,016
----------- -----------
440,963 649,009
Expenses:
Cost of sales 73,184 77,703
Research and development 1,296,070 868,040
Selling, general and administrative 756,275 589,208
Interest 123,040 --
----------- -----------
2,248,569 1,534,951
----------- -----------
Loss from continuing operations before minority interest (1,807,606) (885,942)
Minority interest (63,256) --
----------- -----------
Loss from continuing operations (1,744,350) (885,942)
Income from discontinued operations 876,827 213,582
=========== ===========
Net loss $ (867,523) $ (672,360)
=========== ===========
Basic and diluted loss per common share:
Loss from continuing operations $ (0.23) $ (0.12)
Income from discontinued operations 0.11 0.03
=========== ===========
Net loss $ (0.12) $ (0.09)
=========== ===========
Basic and diluted weighted average shares outstanding 7,516,319 7,441,039
</TABLE>
See accompanying notes.
4
<PAGE> 5
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended March 31,
----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (867,523) $ (672,360)
Adjustments to reconcile net loss to net cash
used by operating activities:
Gain on sale of business (831,038) --
Depreciation and amortization 161,206 154,908
Minority interest in net loss (63,256) --
Net change in assets and liabilities 168,402 (610,836)
----------- -----------
Total adjustments (564,686) (455,928)
----------- -----------
Net cash used by operating activities (1,432,209) (1,128,288)
Cash flows from investing activities:
Increase in short-term investments -- (1,223,657)
Decrease in long-term investments -- 5,096,353
Capital expenditures, net (25,083) (173,467)
Net proceeds from sale of business 1,528,708 --
----------- -----------
Net cash provided by investing activities 1,503,625 3,699,229
Cash flows from financing activities:
Net proceeds from issuance of common stock 54,583 30,450
Redemption of convertible debt (400,000) --
Purchase of treasury stock -- (165,239)
----------- -----------
Net cash used by financing activities (345,417) (134,789)
----------- -----------
Net increase (decrease) in cash and cash equivalents (274,001) 2,436,152
Cash and cash equivalents at beginning of period 5,895,008 1,604,003
----------- -----------
Cash and cash equivalents at end of period $ 5,621,007 $ 4,040,155
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
CYTRX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. DESCRIPTION OF COMPANY AND BASIS OF PRESENTATION
CytRx Corporation ("CytRx") was founded in 1985 and is engaged in the
development and commercialization of pharmaceutical-related products and
services including human therapeutics focused on high-value critical-care
therapies. CytRx's FLOCOR(TM), purified poloxamer 188, is being developed to
treat acute sickle cell crisis and other vascular-occlusive diseases.
In addition to its development work in human therapeutics, CytRx has
created several operating subsidiaries to broaden the development of its
technologies without losing focus on its core critical-care strategy. Vaxcel,
Inc. ("Vaxcel") is developing delivery systems to enhance the effectiveness of
vaccines. Before their divestiture by CytRx in February 1998 and April 1998,
respectively (see Note 4), Proceutics, Inc. ("Proceutics") provided preclinical
development services to the pharmaceutical industry and VetLife, Inc.
("VetLife") was engaged in marketing and distributing products to enhance North
American beef cattle productivity. Reference herein to "the Company" includes
CytRx and its majority-owned subsidiaries.
The accompanying condensed consolidated financial statements at March
31, 1998 and for the three month periods ended March 31, 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,
Proceutics and VetLife are presented as discontinued operations for all periods
presented.
2. INVENTORIES
Inventories at March 31, 1998 and December 31, 1997 are comprised
primarily of finished cattle growth promotant products.
6
<PAGE> 7
3. 6% CONVERTIBLE DEBENTURES
In October 1997, the Company privately placed with certain investors
$2,000,000 of convertible notes (the "Debentures") which mature in October,
2001. In February and March 1998, $500,000 of the Debentures were converted into
204,104 shares of common stock. The provisions for conversion of the Debentures
allow the Company, at its discretion, to disallow conversions below $4.00 per
share by redeeming the amount attempted to be converted; the Company must also
pay a 10% redemption premium. In February 1998, $400,000 of Debentures were
redeemed by the Company.
4. DISCONTINUED OPERATIONS
Sale of Proceutics
In February 1998, the Company consummated a sale of substantially all
of the assets of Proceutics other than real estate 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. 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):
<TABLE>
<S> <C>
Current assets $ 721
Property and equipment, net 696
------
Total assets $1,417
Total liabilities $ 228
</TABLE>
Revenues for Proceutics were $550,000 and $626,000 for the three
months ended March 31, 1998 and 1997, respectively. Net income (losses)
associated with Proceutics included in income (losses) from discontinued
operations were approximately $996,000 and ($86,000) for the periods ended March
31, 1998 and 1997, respectively. A gain related to the sale of approximately
$831,000 is included in income from discontinued operations for the period ended
March 31, 1998. Basic and diluted income (loss) per common share related to
Proceutics' discontinued operations was $0.13 and <$0.01> for the periods ended
March 31, 1998 and 1997, respectively.
Sale of VetLife
In April 1998, CytRx and VetLife entered into an Acquisition Agreement
with VetLife LLC ("VL LLC") pursuant to which VL LLC acquired substantially all
of VetLife's assets 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. The Company retained the $5.4
million in investments that were pledged to secure a letter of credit. The
Company expects a gain related to this transaction which will be recognized in
April 1998.
Revenue for VetLife's cattle marketing operations were $3,790,000 and
$3,080,000 for the three months ended March 31, 1998 and 1997, respectively.
Included in income (loss) from discontinued operations were approximately
($119,000) and $300,000 related to VetLife's cattle marketing operations for the
periods ended March 31, 1998, and 1997, respectively. Basic and diluted income
(loss) per common share was <$0.02> and $0.04 related to VetLife's cattle
marketing operations for the periods ended March 31, 1998 and 1997. A summary of
the assets and liabilities of VetLife being sold
7
<PAGE> 8
which are included in the consolidated balance sheets at March 31, 1998 and
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Current assets $2,217 $3,695
Property and equipment, net 93 100
------ ------
Total assets $2,310 $3,795
====== ======
Total liabilities $1,367 $2,048
====== ======
</TABLE>
5. SALE OF REAL ESTATE
Pursuant to an agreement executed in February 1998, and consummated 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. ("Alexandria") for $4,500,000. The Company expects a gain related to the
transaction which will be recognized in May 1998.
Under the terms of the Agreement, 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.
8
<PAGE> 9
Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At March 31, 1998 the Company had cash and cash equivalents of
$5.6 million and net assets of $18.9 million, compared to $5.9 million and $19.2
million, respectively, at December 31, 1997. Working capital totaled $6.7
million at March 31, 1998, compared to $7.1 million at December 31, 1997. At
March 31, 1998 and December 31, 1997, the Company also had $5.4 million and $5.3
million, respectively, 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 investments on hand, combined with
interest income, operating revenues and the proceeds from the transactions
discussed below, will be sufficient to satisfy the Company's projected liquidity
and working capital needs through late 1999, but it is likely that additional
funding will be required to accomplish the necessary testing and data collection
procedures prescribed by the U.S. Food and Drug Administration 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 $4,500,000. (See
Note 5 to Financial Statements).
9
<PAGE> 10
In April 1998, CytRx's wholly-owned subsidiary, VetLife, Inc.
consummated a sale of substantially all of its assets related to its cattle
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 retained the $5.4 million in investments
owned by VetLife 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.
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.
10
<PAGE> 11
Results of Operations
The following table presents the breakdown of consolidated results of
operations by operating unit for the three month periods ended March 31, 1998
and 1997.
<TABLE>
<CAPTION>
Three Month Period Ended March 31,
----------------------------------
(in thousands) 1998 1997
------- -----
<S> <C> <C>
CytRx $(1,238) $(543)
Vaxcel (506) (343)
------- -----
Net loss from continuing operations $(1,744) $(886)
Discontinued operations:
VetLife (119) 300
Proceutics 996 (86)
------- -----
Income from discontinued operations $ 877 $ 214
------- -----
Net loss $ (867) $(672)
======= =====
</TABLE>
Consolidated net sales from continuing operations for the three months
ended March 31, 1998 were $218,000, as compared to $227,000 in 1997. Cost of
sales from continuing operations was $73,000 during the first quarter of 1997 as
compared to $78,000 in 1997. Investment income from continuing operations was
$144,000 during the first quarter of 1998, as compared to $244,000 in 1997. The
decrease is attributable to declining cash and investment balances.
Research and development expenditures from continuing operations during
the first quarter of 1998 were $1,296,000 versus $868,000 in 1997. Research and
development expenditures increased in 1998 as a result of the Company's
development activities for FLOCOR, including the initiation of a Phase III
clinical trial. The Company also devoted significant resources toward addressing
manufacturing issues for FLOCOR.
Selling, general and administrative expenses from continuing operations
during the first quarter of 1998 were $756,000 as compared to $589,000 in 1997.
The increase is due to amortization expense related to acquired developed
technology and to general corporate activities. During the first quarter of
1998, the Company recorded interest expense of $123,000 related to its
outstanding 6% convertible debentures (See Note 3). Management believes that
inflation had no material impact on the Company's operations during the three
months ended March 31, 1998.
11
<PAGE> 12
Part II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
27.1 Financial Data Schedule (for SEC use only)
27.2 Financial Data Schedule (Restated 1997)
(for SEC use only)
</TABLE>
(b) Reports on Form 8-K
On February 19, 1998, the Registrant filed a Current Report on Form 8-K
related to the sale of substantially all of the non-real estate assets
of Proceutics, Inc.
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 14, 1998 By: /s/ Mark W. Reynolds
------------------------------
Mark W. Reynolds
Chief Financial Officer
(Chief Accounting Officer
and a duly authorized officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CYTRX CORPORATION FOR THE THREE MONTHS ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,621,007
<SECURITIES> 0
<RECEIVABLES> 1,481,039
<ALLOWANCES> 0
<INVENTORY> 1,340,008
<CURRENT-ASSETS> 8,685,718
<PP&E> 5,279,445
<DEPRECIATION> 1,309,679
<TOTAL-ASSETS> 22,610,613
<CURRENT-LIABILITIES> 2,015,475
<BONDS> 1,100,000
0
0
<COMMON> 8,206
<OTHER-SE> 18,931,706
<TOTAL-LIABILITY-AND-EQUITY> 22,610,613
<SALES> 217,965
<TOTAL-REVENUES> 440,963
<CGS> 73,184
<TOTAL-COSTS> 73,184
<OTHER-EXPENSES> 2,175,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,040
<INCOME-PRETAX> (1,744,350)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,744,350)
<DISCONTINUED> 876,827
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (867,523)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CYTRX CORPORATION FOR THE 3 MONTHS ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,040,155
<SECURITIES> 11,496,765
<RECEIVABLES> 2,242,055
<ALLOWANCES> 48,430
<INVENTORY> 11,434
<CURRENT-ASSETS> 18,081,020
<PP&E> 7,232,568
<DEPRECIATION> 2,201,200
<TOTAL-ASSETS> 24,211,595
<CURRENT-LIABILITIES> 2,681,010
<BONDS> 0
0
0
<COMMON> 7,952
<OTHER-SE> 21,522,633
<TOTAL-LIABILITY-AND-EQUITY> 24,211,595
<SALES> 227,311
<TOTAL-REVENUES> 649,009
<CGS> 77,703
<TOTAL-COSTS> 77,703
<OTHER-EXPENSES> 1,457,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (885,942)
<INCOME-TAX> 0
<INCOME-CONTINUING> (885,942)
<DISCONTINUED> 213,582
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (672,360)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
