<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 June 30, 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
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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 August 4, 1999: 7,636,041.
<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
June 30, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month and Six Month Periods Ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Six Month Periods Ended June 30, 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
</TABLE>
2
<PAGE> 3
Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,032,870 $ 8,855,375
Short-term investments -- 6,417,066
Accounts receivable 151,975 83,249
Note receivable -- 300,000
Inventories 5,747 10,935
Other current assets 87,544 10,377
------------ ------------
Total current assets 10,278,136 15,677,002
Property and equipment, net 729,907 195,030
Other assets:
Acquired developed technology, net -- 600,000
Other assets 70,978 169,536
------------ ------------
Total other assets 70,978 769,536
------------ ------------
Total assets $ 11,079,021 $ 16,641,568
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 628,575 $ 540,089
Accrued liabilities 910,657 1,409,034
------------ ------------
Total current liabilities 1,539,232 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;
8,266,670 and 8,236,926 shares issued at June 30, 1999
and December 31, 1998, respectively 8,267 8,237
Additional paid-in capital 67,224,951 66,423,577
Treasury stock, at cost (633,816 and 625,816 shares held at
June 30, 1999 and December 31, 1998, respectively) (2,279,238) (2,270,238)
Accumulated deficit (55,414,191) (49,473,028)
------------ ------------
Total stockholders' equity 9,539,789 14,688,548
------------ ------------
Total liabilities and stockholders' equity $ 11,079,021 $ 16,641,568
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(restated) (restated)
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 226,839 $ 254,751 $ 428,879 $ 472,716
Interest income 135,223 286,324 311,332 423,124
Grant income 226,829 352,082 254,290 352,082
Other 38,629 57,651 88,398 142,816
----------- ----------- ----------- -----------
627,520 950,808 1,082,899 1,390,738
Expenses:
Cost of sales 48,297 38,701 128,974 111,885
Research and development 2,435,000 2,202,090 4,793,061 3,236,528
Selling, general and administrative 655,649 644,001 1,856,522 1,277,867
----------- ----------- ----------- -----------
3,138,946 2,884,792 6,778,557 4,626,280
----------- ----------- ----------- -----------
Loss from continuing operations before
extraordinary item (2,511,426) (1,933,984) (5,695,658) (3,235,542)
Income (loss) from discontinued operations (153,810) 5,747,630 (249,402) 6,118,409
Minority interest -- (52,680) (3,897) (115,936)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (2,665,236) 3,866,326 (5,941,163) 2,998,803
Extraordinary item:
Loss on early extinguishment of debt -- (325,120) -- (325,120)
----------- ----------- ----------- -----------
Net income (loss) $(2,665,236) $ 3,541,206 $(5,941,163) $ 2,673,683
=========== =========== =========== ===========
Basic and diluted income (loss) per common share:
Continuing operations $ (0.33) $ (0.25) $ (0.75) $ (0.43)
Discontinued operations (0.02) 0.75 (0.03) 0.82
Extraordinary item -- (0.04) -- (0.04)
=========== =========== =========== ===========
Net income (loss) $ (0.35) $ 0.46 $ (0.78) $ 0.35
=========== =========== =========== ===========
Basic and diluted
weighted average shares outstanding 7,639,828 7,659,456 7,631,657 7,591,361
</TABLE>
4
<PAGE> 5
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Periods Ended June 30,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,941,163) $ 2,673,683
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 57,597 324,743
Stock option expense 761,181 --
Gain on sales of subsidiaries -- (7,115,008)
Gain on sale of real estate -- (409,454)
Extraordinary loss on early extinguishment of debt -- 325,120
Minority interest in net loss of subsidiary (3,897) (115,936)
Net change in assets and liabilities 447,962 1,057,378
------------ ------------
Total adjustments 1,262,843 (5,933,157)
------------ ------------
Net cash used by operating activities (4,678,320) (3,259,474)
Cash flows from investing activities:
Decrease in short-term investments 6,417,066 --
Decrease in long-term investments -- 5,326,647
Capital expenditures, net (592,474) (39,641)
Net proceeds from sale of subsidiaries -- 4,464,688
Net proceeds from sale of real estate -- 4,225,221
------------ ------------
Net cash provided by investing activities 5,824,592 13,976,915
Cash flows from financing activities:
Net proceeds from issuance of common stock 40,223 76,606
Purchase of treasury stock (9,000) --
Redemption of convertible debt -- (1,650,000)
------------ ------------
Net cash provided (used) by financing activities 31,223 (1,573,394)
------------ ------------
Net increase in cash and cash equivalents 1,177,495 9,144,047
Cash and cash equivalents at beginning of period 8,855,375 5,895,008
------------ ------------
Cash and cash equivalents at end of period $ 10,032,870 $ 15,039,055
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
CYTRX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 also
plans to expand development of FLOCOR(TM) for acute respiratory disorders and
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,
and animal feed additives.
The accompanying condensed consolidated financial statements at June
30, 1999 and for the three month and six month periods ended June 30, 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 recorded this transaction in the second quarter of 1999 as
a sale of its Acquired Developed Technology, valued at $600,000, and therefore
did not record a gain or loss on the transaction. The $20,000 in option
extension fees paid by Innovax is included in the discontinued operations of
Vaxcel
6
<PAGE> 7
in the accompanying Statement of Operations. The $400,000 due upon exercise of
the option was paid on April 1, 1999.
3. SEGMENT REPORTING
<TABLE>
<CAPTION>
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended June 30, 1999:
Sales to external customers $128 $ 99 $ -- $ 227 $ -- $ -- $ -- $ --
Segment profit (loss) 75 46 (2,632) (2,511) -- -- (154) (154)
Total assets -- -- 10,671 10,671 -- -- 408 408
Three Months Ended June 30, 1998:
Sales to external customers 128 127 -- 255 593 -- -- 593
Segment profit (loss) 74 70 (2,403) (2,259) 5,803 367 (370) 5,800
Total assets -- -- 19,610 19,610 -- -- 4,574 4,574
Six Months Ended June 30, 1999:
Sales to external customers 265 164 -- 429 -- -- -- --
Segment profit (loss) 158 45 (5,899) (5,696) -- -- (246) (246)
Total assets -- -- 10,671 10,671 -- -- 408 408
Six Months Ended June 30, 1998:
Sales to external customers 245 228 -- 473 4,383 407 -- 4,790
Intersegment sales -- -- -- -- -- 143 -- 143
Segment profit (loss) 134 91 (3,786) (3,561) 5,683 1,363 (812) 6,234
Total assets -- -- 19,610 19,610 -- -- 4,574 4,574
</TABLE>
4. PURCHASE COMMITMENTS
At June 30, 1999, the Company had outstanding firm purchase
commitments of $800,000 related to the design and construction of
manufacturing equipment for commercial production of FLOCOR.
7
<PAGE> 8
Item 2. -- Management's Discussion and Analysis of Financial Condition
And Results of Operations
Liquidity and Capital Resources
At June 30, 1999 the Company had cash and cash equivalents and
short-term investments of $10.0 million and net assets of $9.5 million,
compared to $15.3 million and $14.7 million, respectively, at December 31,
1998. Working capital totaled $8.7 million at June 30, 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 1998 and 1999, 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 provides approximately $400,000 over two years to help defray the overall
costs of the study, $200,000 of which was received during each of the quarters
ended June 30, 1999 and 1998. 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
<PAGE> 9
Results of Operations
The Company recorded net losses of $2,665,000 and $5,941,000 for the
three month and six month periods ended June 30, 1999 as compared to net income
of $3,541,000 and $2,674,000 for the same periods in 1998. Losses from
continuing operations before extraordinary item were $2,511,000 and $5,696,000
for the three and six month periods ended June 30, 1999 as compared to losses
of $1,934,000 and $3,236,000 in 1998, respectively.
Net sales from continuing operations, which consist primarily of sales
of TiterMax research adjuvant and service revenues from Spectrum Recruitment
Research, were $227,000 and $429,000 during the three and six month periods
ended June 30, 1999, as compared to $255,000 and $473,000 in 1998,
respectively. Cost of product sales and service revenues was $48,000 and
$129,000 during the three month and six month periods of 1999, versus $39,000
and $112,000 during 1998.
Interest income from continuing operations was $135,000 and $286,000
during the three months ended June 30, 1999 and 1998, respectively, and
$311,000 and $423,000 during the six month periods then ended. The variance
between years generally corresponds to fluctuating cash and investment
balances. Grant income from continuing operations was $227,000 and $352,000
during the three months ended June 30, 1999 and 1998, respectively, and
$254,000 and $352,000 during the six month periods then ended. As discussed
under Liquidity and Capital Resources above, grant income primarily relates to
a grant from the FDA for support of CytRx's Phase III clinical trial of
FLOCOR(TM). Other income from continuing operations was $39,000 and $58,000
during the three months ended June 30, 1999 and 1998, respectively, and $88,000
and $143,000 during the six month periods then ended. Other income includes
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
$2,435,000 and $2,202,000 during the three months ended June 30, 1999 and 1998,
and $4,793,000 and $3,327,000 for the six month periods then ended. 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 to complete its
current Phase III by the end of 1999.
Selling, general and administrative expense from continuing operations
were $656,000 and $644,000 during the three months ended June 30, 1999 and
1998, and $1,857,000 and $1,278,000 for the six month periods then ended.
Overall selling, general and administrative expenses have decreased as a result
of the Company's divestiture of its subsidiary operations. 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 and second quarters of 1999, certain
vesting criteria of these options and warrants were achieved, resulting in
aggregate non-cash charges to compensation expense and consulting expense of
$727,000 and $34,000, respectively, which are included in selling, general and
administrative expense.
9
<PAGE> 10
Net income (loss) from discontinued operations, net of minority
interest, was $(154,000) and $5,800,000 during the three months ended June 30,
1999 and 1998, and $(246,000) and $6,234,000 for the six month periods then
ended. 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 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 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------
1999 1998 1999 1998
------ ------- ------ -------
<S> <C> <C> <C> <C>
Vaxcel, net of minority interest $ (154) $ (370) $ (246) $ (812)
Proceutics -- 367 -- 1,363
CytRx Animal Health -- 5,803 -- 5,683
------ ------- ------ -------
Income (loss) from discontinued operations $ (154) $ 5,800 $ (246) $ 6,234
====== ======= ====== =======
</TABLE>
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.
During the second quarter of 1999, the Company completed the
remediation phase of its Year 2000 Plan with respect to its mission critical
internal computer systems. Total costs incurred during the quarter were less
than $10,000. There have been no other significant 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.
Item 3. -- Quantitative and Qualitative Disclosures About Market Risk
There 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
<PAGE> 11
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 1998) (for SEC use only)
</TABLE>
(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: August 4, 1999 By: /s/ Mark W. Reynolds
-------------- ------------------------------
Mark W. Reynolds
Chief Financial Officer
(Chief Accounting Officer
and a duly authorized officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,032,870
<SECURITIES> 0
<RECEIVABLES> 151,975
<ALLOWANCES> 0
<INVENTORY> 5,747
<CURRENT-ASSETS> 10,278,136
<PP&E> 1,246,649
<DEPRECIATION> 516,742
<TOTAL-ASSETS> 11,079,021
<CURRENT-LIABILITIES> 1,539,232
<BONDS> 0
0
0
<COMMON> 8,267
<OTHER-SE> 9,531,522
<TOTAL-LIABILITY-AND-EQUITY> 11,079,021
<SALES> 428,879
<TOTAL-REVENUES> 1,082,899
<CGS> 128,974
<TOTAL-COSTS> 128,974
<OTHER-EXPENSES> 6,649,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,695,658)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,695,658)
<DISCONTINUED> (245,505)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,941,163)
<EPS-BASIC> (.78)
<EPS-DILUTED> (.78)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,039,055
<SECURITIES> 0
<RECEIVABLES> 4,520,775
<ALLOWANCES> 0
<INVENTORY> 9,001
<CURRENT-ASSETS> 19,802,040
<PP&E> 977,940
<DEPRECIATION> 720,484
<TOTAL-ASSETS> 24,184,203
<CURRENT-LIABILITIES> 1,178,516
<BONDS> 0
0
0
<COMMON> 8,217
<OTHER-SE> 22,494,924
<TOTAL-LIABILITY-AND-EQUITY> 24,184,203
<SALES> 472,716
<TOTAL-REVENUES> 1,390,738
<CGS> 111,885
<TOTAL-COSTS> 111,885
<OTHER-EXPENSES> 4,514,395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,235,542)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,235,542)
<DISCONTINUED> 6,234,345
<EXTRAORDINARY> (325,120)
<CHANGES> 0
<NET-INCOME> 2,673,683
<EPS-BASIC> .35
<EPS-DILUTED> .35
</TABLE>
