<PAGE>
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, 2000
-------------
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
of incorporation or organization) Identification No.)
154 Technology Parkway
Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 368-9500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO____
---
Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and
outstanding as of August 10, 2000: 10,062,696.
<PAGE>
CYTRX CORPORATION
-----------------
Form 10-Q
---------
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of
June 30, 2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month and Six Month Periods Ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Three Month and Six Month Periods Ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 13
</TABLE>
2
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Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------- --------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,374,197 $ 3,031,893
Accounts receivable 322,121 174,292
Inventories - 6,480
Other current assets 59,951 202,610
------------ ------------
Total current assets 2,756,269 3,415,275
Property and equipment, net 2,525,109 2,641,810
Note receivable 650,000 -
Other assets 60,978 70,978
------------ ------------
Total assets $ 5,992,356 $ 6,128,063
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 662,050 $ 629,738
Accrued liabilities 870,223 2,121,999
------------ ------------
Total current liabilities 1,532,273 2,751,737
Long-term debt - 650,000
Other long-term liabilities - 1,693,638
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;
10,213,866 and 8,373,853 shares issued at June 30, 2000
and December 31, 1999, respectively 10,214 8,374
Additional paid-in capital 72,134,118 67,805,871
Treasury stock, at cost (633,816 shares held at June 30, 2000
and December 31, 1999) (2,279,238) (2,279,238)
Accumulated deficit (65,405,011) (64,502,319)
------------ ------------
Total stockholders' equity 4,460,083 1,032,688
------------ ------------
Total liabilities and stockholders' equity $ 5,992,356 $ 6,128,063
============ ============
</TABLE>
See accompanying notes.
3
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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ------------- ------------ ------------
(restated) (restated)
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 85,156 $ 98,601 $ 185,284 $ 164,331
Interest income 38,019 135,223 68,908 311,332
Grant income 136,261 226,829 209,472 254,290
Other 23,492 38,629 169,806 88,398
----------- ----------- ----------- -----------
282,928 499,282 633,470 818,351
Expenses:
Cost of sales 44,281 37,570 96,701 106,110
Research and development 553,844 2,435,000 1,228,418 4,793,061
Selling, general and administrative 446,919 612,966 1,010,371 1,773,142
----------- ----------- ----------- -----------
1,045,044 3,085,536 2,335,490 6,672,313
----------- ----------- ----------- -----------
Loss from continuing operations (762,116) (2,586,254) (1,702,020) (5,853,962)
Income (loss) from discontinued operations 759,514 (78,982) 799,328 (91,098)
Minority interest - - - (3,897)
----------- ----------- ----------- -----------
Net loss $ (2,602) $(2,665,236) $ (902,692) $(5,941,163)
=========== =========== =========== ===========
Basic and diluted income (loss) per common share:
Continuing operations $ (0.08) $ (0.34) $ (0.19) $ (0.77)
Discontinued operations 0.08 (0.01) 0.09 (0.01)
----------- ----------- ----------- -----------
Net loss $ (0.00) $ (0.35) $ (0.10) $ (0.78)
=========== =========== =========== ===========
Basic and diluted
weighted average shares outstanding 9,580,050 7,639,828 8,825,107 7,631,657
</TABLE>
See accompanying notes.
4
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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Period Ended June 30,
------------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (902,692) $ (5,941,163)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 117,365 57,597
Gain on sale of Titermax (679,784) -
Stock option expense 217,875 761,181
Minority interest in net loss of subsidiary - (3,897)
Net change in assets and liabilities (1,078,030) 447,962
------------ ------------
Total adjustments (1,422,574) 1,262,843
------------ ------------
Net cash used by operating activities (2,325,266) (4,678,320)
Cash flows from investing activities:
Decrease in short-term investments - 6,417,066
Capital expenditures, net (664) (592,474)
Net proceeds from sale of Titermax 100,000 -
------------ ------------
Net cash provided by investing activities 99,336 5,824,592
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,768,234 40,223
Retirement of debt (200,000) -
Purchase of treasury stock - (9,000)
------------ ------------
Net cash provided by financing activities 1,568,234 31,223
------------ ------------
Net increase (decrease) in cash and cash equivalents (657,696) 1,177,495
Cash and cash equivalents at beginning of period 3,031,893 8,855,375
------------ ------------
Cash and cash equivalents at end of period $ 2,374,197 $ 10,032,870
============ ============
=
</TABLE>
See accompanying notes.
5
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CYTRX CORPORATION
-----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
June 30, 2000
-------------
(Unaudited)
---------
1. Description of Company and Basis of Presentation
CytRx Corporation ("CytRx" or "the Company") is a biopharmaceutical company
engaged in the development and commercialization of high-value human
therapeutics. The Company's current research and development focus is on
vascular-occlusive disorders. CytRx also has a research pipeline with
opportunities in the areas of acute respiratory disorders, infectious disease,
gene and drug delivery, vaccines, and animal feed additives.
The accompanying condensed consolidated financial statements at June 30,
2000 and for the three month and six month periods ended June 30, 2000 and 1999
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, 1999. The Company has restated all periods presented to give
effect to the treatment of the sale of its TiterMax product line in June 2000 as
a discontinued operation (see Note 5).
2. Exchange of Common Stock for Cancellation of Accounts Payable, Accrued
Expenses and Debt
During the first quarter of 2000, the Company reached agreements with
certain of its trade creditors whereby an aggregate of $1,894,000 of trade
payables was cancelled in exchange for issuance of approximately 758,000 shares
of CytRx Common Stock. Of this amount, $1,694,000 existed at December 31, 1999,
and was accordingly classified as long-term liabilities on the Balance Sheet at
that date. The Company also cancelled $650,000 of long-term debt in exchange for
a cash payment of $200,000 and the issuance of 180,000 shares of CytRx Common
Stock.
3. Private Placement of Common Stock
In March 2000, the Company entered into a Stock Purchase Agreement with
certain investors (the "Investors") whereby the Investors agreed to purchase
800,000 shares of the Company's Common Stock for an aggregate purchase price of
$1.8 million and the issuance of warrants to purchase an additional 330,891
shares at $2.25 per share, expiring March 31, 2003. The Investors were granted
registration rights for the shares issued to them and the shares
6
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underlying the warrants. Subject to certain conditions, the Investors were also
required, upon effective registration of the shares, to either (a) purchase an
additional 286,000 shares at $2.25 per share and simultaneously receive an
additional three-year warrant to purchase 143,000 shares at $2.25 per share, or
(b) purchase 429,000 shares at a price equal to 75% of a trailing average market
price of the Company's Common Stock, as defined in the Stock Purchase Agreement.
In July 2000, the Investors exercised their rights to purchase 429,000
additional shares at a net price of $.77 per share, resulting in net proceeds of
$330,000 to the Company.
4. Equity Line of Credit
In April 2000, the Company entered into a Private Equity Line of Credit
Agreement (the "ELC Agreement") with Majorlink Holdings Limited ("Majorlink"),
pursuant to which the Company has the right to put shares of Common Stock to
Majorlink from time to time during the "commitment period" to raise up to
$5,000,000, subject to certain conditions and restrictions. The "commitment
period" begins on the effective date of a registration statement filed by the
Company to register the resale by Majorlink of the shares of Common Stock that
Majorlink purchases under the ELC Agreement and ends on the earliest of (1) the
date thirty months from such date, (2) the date on which Majorlink shall have
purchased $5,000,000 of Common Stock under the ELC Agreement and (3) the date
either party terminates the ELC Agreement in accordance with its terms.
Each time the Company desires to raise a specific amount of cash under the
ELC Agreement, the Company shall issue to Majorlink a number of shares of Common
Stock determined by (1) dividing the amount of cash desired to be raised by the
Company by (2) 90% of a trailing market average price of the Company's Common
Stock, as defined in the ELC Agreement.
In connection with the ELC Agreement, the Company issued Majorlink a
warrant (as amended in June 2000) to purchase up to 150,000 shares of Common
Stock at a per share exercise price of $2.25. The warrant is exercisable for a
period of three years.
5. Sale of Titermax
Since 1987 CytRx has manufactured, marketed and distributed Titermax, and
adjuvant used to produce immune responses in research animals. Effective June
15, 2000, the Company entered into a Purchase Agreement with Titermax USA, Inc.
(an unaffiliated company) whereby Titermax USA purchased the worldwide rights to
market and distribute Titermax, including all accounts receivable, inventory and
other assets used in the Titermax business. The gross purchase price was
$750,000, consisting of $100,000 in cash and a $650,000 five-year secured
promissory note bearing interest of 10% annually.
Net income associated with the Titermax activities included in income
(loss) from discontinued operations was approximately $120,000 and $158,000 for
the six months ended
7
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June 30, 2000 and 1999, respectively. A gain related to the sale of $680,000 was
recorded in the second quarter of 2000 and classified as discontinued
operations.
6. Segment Reporting
<TABLE>
<CAPTION>
Continuing Operations
----------------------------------------------
Total
Recruiting Product Continuing Discontinued
(in thousands) Services Development Operations Operations
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three Months Ended June 30, 2000:
Sales to external customers $ 85 $ - $ 85 $ 106
Intersegment sales - - - -
Segment profit (loss) 36 (798) (762) 760
Total assets - 5,992 5,992 -
Three Months Ended June 30, 1999
Sales to external customers 99 - 99 128
Intersegment sales - - - -
Segment profit (loss) 46 (2,632) (2,586) (79)
Total assets - 10,671 10,671 408
Six Months Ended June 30, 2000:
Sales to external customers 185 - 185 170
Intersegment sales - - - -
Segment profit (loss) 79 (1,781) (1,702) 799
Total assets - 5,992 5,992
Six Months Ended June 30, 1999:
Sales to external customers 164 - 164 265
Intersegment sales - - - -
Segment profit (loss) 45 (5,899) (5,854) 158
Total assets - 10,671 10,671 408
</TABLE>
8
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Item 2. -- Management's Discussion and Analysis of Financial Condition And
---------------------------------------------------------------
Results of Operations
---------------------
Liquidity and Capital Resources
At June 30, 2000 we had cash and cash equivalents of $2.4 million and net
assets of $4.5 million, compared to $3.0 million and $1.0 million, respectively,
at December 31, 1999. Working capital totaled $1.2 million at June 30, 2000,
compared to $0.7 million at December 31, 1999.
During the first quarter of 2000, we took steps to improve our financial
condition, including (i) agreements with certain trade creditors whereby an
aggregate of $2.3 million of indebtedness was cancelled in exchange for issuance
of approximately 938,000 shares of our common stock (see Note 2 to Financial
Statements), and (ii) a Stock Purchase Agreement with investors whereby they
agreed to purchase 800,000 shares of our common stock for an aggregate purchase
price of $1.8 million and the issuance of warrants (see Note 3 to Financial
Statements). As part of our efforts to conserve cash resources we also reduced
our staff and reduced our clinical development program for FLOCOR.
In April 2000, we entered into a Private Equity Line of Credit Agreement
where we have the right to put shares of our common stock to an investor from
time to time to raise up to $5,000,000, subject to certain conditions and
restrictions (see Note 4 to Financial Statements).
In June 2000 we entered into a Purchase Agreement with Titermax USA, Inc.
(an unaffiliated company) where we sold the worldwide rights to market and
distribute Titermax, including all accounts receivable, inventory and other
assets used in the Titermax business. The gross purchase price was $750,000,
consisting of $100,000 in cash and a $650,000 five-year secured promissory note
bearing interest of 10% annually.
We believe that the proceeds of the transactions discussed above will allow
us to operate throughout the remainder of 2000, but that additional funds will
be needed to significantly advance any of our technologies under development,
some of which may be provided by the Private Equity Line of Credit Agreement.
The results of our technology licensing efforts and/or the actual proceeds of
any fund-raising activities will determine our ongoing ability to operate as a
going concern with the current portfolio of technologies under development. Both
our technology licensing efforts and our fund-raising activities are subject to
market conditions and our ability to identify parties that are willing and able
to enter into such arrangements on terms that are satisfactory to us. There is
no assurance that such funding will be available to finance our operations on
acceptable terms, if at all. Insufficient funding may require us to delay,
reduce or eliminate some or all of our research and development activities,
planned clinical trials and administrative programs.
The above statements regarding our plans and expectations for future
financing are forward-looking statements that are subject to a number of risks
and uncertainties. Our ability to obtain future financings through joint
ventures, product licensing arrangements, equity
9
<PAGE>
financings or otherwise is subject to market conditions and our ability to
identify parties that are willing and able to enter into such arrangements on
terms that are satisfactory to us. There can be no assurance that we will be
able to obtain future financing from these sources. Depending upon the outcome
of our fund raising efforts, the accompanying financial information may not
necessarily be indicative of future operating results or future financial
condition.
Results of Operations
We recorded net losses of $3,000 and $903,000 for the three month and six
month periods ended June 30, 2000 as compared to $2,665,000 and $5,941,000 for
the same periods in 1999. Loss from continuing operations was $762,000 and
$1,702,000 for the three month and six month periods ended June 30, 2000 as
compared to $2,586,000 and $5,584,000 in 1999. The overall reduction in net loss
is due primarily to changes in the Company's research and development
expenditures, discussed below.
Net sales from continuing operations, which consist solely of service
revenues from Spectrum Recruitment Research, were $85,000 and $185,000 during
the three month and six month periods ended June 30, 2000 as compared to $99,000
and $164,000 in 1999. Cost of sales were $44,000 and $97,000 for the three month
and six month periods ended June 30, 2000 as compared to $38,000 and $106,000 in
1999.
Interest income was $38,000 and $69,000 during the three month and six
month periods ended June 30, 2000, as compared to $135,000 and $311,000 in 1999.
The variance between years generally corresponds to fluctuating cash and
investment balances.
Grant income was $136,000 and $209,000 during the three month and six month
periods ended June 30, 2000, as compared to $227,000 and $254,000 in 1999. Costs
related to grant income are included in research and development expense and
generally approximate the amount of revenue recognized.
Other income was $23,000 and $170,000 during the three month and six month
periods ended June 30, 2000 as compared to $39,000 and $88,000 in 1999. Other
income for the six months period in 2000 includes $125,000 in fees paid by a
third party during the first quarter pursuant to an Evaluation Agreement for the
Company's gene delivery technology.
Research and development expenditures were $554,000 and $1,228,000 during
the three month and six month periods ended June 30, 2000, as compared to
$2,435,000 and $4,793,000 in 1999. Research and development expenditures are
higher in prior periods due to our clinical development activities for FLOCOR.
In December 1999, we completed a Phase III clinical trial of FLOCOR for
treatment of acute sickle cell crisis. Subsequent to the completion of that
study, we reduced our clinical development activities for FLOCOR pending further
analysis of the Phase III results. Our development activities during 2000 have
consisted primarily of analysis of the Phase III results and consultation with
our scientific and regulatory advisors.
10
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Selling, general and administrative expenditures were $447,000 and
$1,010,000 during the three and six month periods ended June 30, 2000, as
compared to $613,000 and $1,773,000 in 1999. During each of the periods, certain
vesting criteria of employee and consultant options and warrants were achieved,
resulting in aggregate non-cash charges of $62,000 and $218,000, during the
three and six month periods ended June 30, 2000 and $34,000 and $761,000 during
the same periods in 1999.. Excluding these charges, selling, general and
administrative expenditures were $385,000 and $792,000 during the 2000 periods
and $579,000 and $1,012,000 during the 1999 periods. The overall decrease from
1999 to 2000 reflects our staff reductions and other steps we've taken to
conserve our cash resources.
Net income (loss) from discontinued operations, net of minority interest,
was $760,000 and $799,000 during the three and six month periods ended June 30,
2000, as compared to $(79,000) and $(87,000) in 1999. Income (loss) from
discontinued operations relates to the operations of a former subsidiary,
Vaxcel, Inc., we sold in September 1999 and the operations of Titermax, we sold
in June 2000 (see Note 5 to Financial Statements). The amounts for the three
month and six month periods of 2000 include a gain of $680,000 from our sale of
Titermax.
Item 3. -- Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There have been no changes in our assessment of market risk from that
disclosed in our Form 10-K for the year ended December 31, 1999.
11
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PART II-- OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on June 27, 2000, the following
individual was elected as a Class III member of CytRx's Board of Directors:
Votes For Votes Withheld
--------- --------------
Max Link 7,060,014 924,469
The following individuals term of office as a director continued after the
Annual Meeting.
Raymond C. Carnahan, Jr. Jack J. Luchese
Lyle A. Hohnke Herbert H. McDade
The following proposals were submitted to our stockholders for approval:
<TABLE>
<CAPTION>
Votes Abstained/
Votes For Votes Against Not Voted
--------- ------------- ---------
<S> <C> <C> <C>
Proposal 2
----------
Amendment of the Company's Certificate
of Incorporation to increase the Company's
authorized Common Stock from 18,750,000
shares to 50,000,0000 shares. 6,764,479 1,186,950 1,628,621
Proposal 3
----------
Amendment of the Company's Certificate
of Incorporation to increase the Company's
authorized Preferred Stock from 1,000 shares
to 1,000,100 shares 2,057,163 1,195,393 6,327,494
Proposal 4
----------
Approval of the issuance and sale from time to
Time to Majorlink Holdings Limited of up to
5,000,000 shares of Common Stock in
accordance with the terms of a Private Equity
Line of Credit Agreement. 2,462,994 776,002 6,341,054
Proposal 5
----------
Ratification of appointment of Ernst & Young
LLP as independent auditors for the fiscal year
ending December 31, 2000. 7,408,250 547,176 1,624,624
</TABLE>
The nominee for director was elected. Proposals 2, 4 and 5 received more than
the number of votes required for their approval, and were adopted. Proposal 3
received fewer than the number of votes required for approval, and was not
adopted.
12
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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 - 1999 Restatement (for SEC use only)
(b) Reports on Form 8-K
On June 18, 2000, we filed a report on Form 8-K reporting the sale of our
Titermax product line.
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 10, 2000 By: /s/ Mark W. Reynolds
--------------- ------------------------------
Mark W. Reynolds
Vice President, Finance
(Chief Accounting Officer
and a duly authorized officer)
13
