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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 September 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)
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<S> <C> <C>
Delaware 58-1642740
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
154 Technology Parkway
Suite 200
Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)
</TABLE>
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 October 30, 2000: 10,100,196.
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CYTRX CORPORATION
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Form 10-Q
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Table of Contents
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Page
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month and Nine Month Periods Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Three Month and Nine Month Periods Ended September 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 12
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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2
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Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
September 30, December 31,
2000 1999
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(Unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 2,172,799 $ 3,031,893
Accounts receivable 169,102 174,292
Other current assets 54,211 209,090
-------------- -------------
Total current assets 2,396,112 3,415,275
Property and equipment, net 2,425,127 2,641,810
Note receivable 624,608 -
Other assets 60,977 70,978
-------------- -------------
Total assets $ 5,506,824 $ 6,128,063
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 476,067 $ 629,738
Accrued liabilities 759,307 2,121,999
-------------- -------------
Total current liabilities 1,235,374 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;
10,696,512 and 8,373,853 shares issued at September 30, 2000
and December 31, 1999, respectively 10,696 8,374
Additional paid-in capital 72,551,195 67,805,871
Treasury stock, at cost (633,816 shares held at September 30, 2000
and December 31, 1999) (2,279,238) (2,279,238)
Accumulated deficit (66,011,203) (64,502,319)
-------------- -------------
Total stockholders' equity 4,271,450 1,032,688
-------------- -------------
Total liabilities and stockholders' equity $ 5,506,824 $ 6,128,063
============== =============
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See accompanying notes.
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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
-------------- --------------- ---------------- ---------------
(restated) (restated)
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Revenues:
Net sales $ 168,086 $ 75,397 $ 353,370 $ 239,728
Interest income 47,993 95,505 116,901 406,837
Grant income 107,269 150,077 316,741 404,367
Other 80,594 29,958 250,400 118,356
-------------- --------------- ---------------- ---------------
403,942 350,937 1,037,412 1,169,288
Expenses:
Cost of sales 82,035 51,710 178,736 157,820
Research and development 387,516 4,541,104 1,615,934 9,334,165
Selling, general and administrative 540,583 896,321 1,550,954 2,669,463
-------------- --------------- ---------------- ---------------
1,010,134 5,489,135 3,345,624 12,161,448
-------------- --------------- ---------------- ---------------
Loss from continuing operations (606,192) (5,138,198) (2,308,212) (10,992,160)
Income from discontinued operations - 252,385 799,328 161,287
Minority interest - - - (3,897)
-------------- --------------- ---------------- ---------------
Net loss $ (606,192) $ (4,885,813) $ (1,508,884) $ (10,826,976)
============== =============== ================ ===============
Basic and diluted income (loss) per common share:
Continuing operations $ (0.06) $ (0.67) $ (0.25) $ (1.44)
Discontinued operations - 0.03 0.09 0.02
-------------- --------------- ---------------- ---------------
Net loss $ (0.06) $ (0.64) $ (0.16) $ (1.42)
============== =============== ================ ===============
Basic and diluted
weighted average shares outstanding 9,937,838 7,635,625 9,198,725 7,627,983
</TABLE>
See accompanying notes.
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CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Nine Month Period Ended September 30,
----------------------------------------
2000 1999
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Cash flows from operating activities:
Net loss $ (1,508,884) $ (10,826,976)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 153,241 83,097
Gain on sale of Titermax (679,784) -
Gain of sale of subsidiary - (240,196)
Stock option and warrant expense 217,875 1,067,766
Minority interest in net loss of subsidiary - (3,897)
Net change in assets and liabilities (1,190,777) 605,256
-------------- ---------------
Total adjustments (1,499,445) 1,512,026
-------------- ---------------
Net cash used by operating activities (3,008,329) (9,314,950)
Cash flows from investing activities:
Decrease in short-term investments - 6,417,066
Capital expenditures/retirements, net 63,442 (886,100)
Net proceeds from sale of Titermax 100,000 -
Net proceeds from sale of subsidiary - 240,196
-------------- ---------------
Net cash provided by investing activities 163,442 5,771,162
Cash flows from financing activities:
Net proceeds from issuance of common stock 2,185,793 54,788
Retirement of debt (200,000) -
Purchase of treasury stock - (9,000)
-------------- ---------------
Net cash provided by financing activities 1,985,793 45,788
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (859,094) (3,498,000)
Cash and cash equivalents at beginning of period 3,031,893 8,855,375
-------------- ---------------
Cash and cash equivalents at end of period $ 2,172,799 $ 5,357,375
============== ===============
</TABLE>
See accompanying notes.
5
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CYTRX CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
September 30, 2000
------------------
(Unaudited)
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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 September
30, 2000 and for the three month and nine month periods ended September 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 prior 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 or (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 will 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(R), an
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 $201,000 for
the nine months ended
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September 30, 2000 and 1999, respectively. A gain related to the sale of
$680,000 was recorded in the second quarter of 2000 and is classified as
discontinued operations.
7. Segment Reporting
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Continuing Operations
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Total
Recruiting Product Continuing Discontinued
(in thousands) Services Development Operations Operations
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<S> <C> <C> <C> <C>
Three Months Ended September 30, 2000:
Sales to external customers $ 168 $ - $ 168 $ -
Intersegment sales - - - -
Segment profit (loss) 69 (675) (606) -
Total assets - 5,507 5,507 -
Three Months Ended September 30, 1999
Sales to external customers 75 - 75 98
Intersegment sales - - - -
Segment profit (loss) 7 (5,145) (5,138) 252
Total assets - 6,702 6,702 64
Nine Months Ended September 30, 2000:
Sales to external customers 353 - 353 170
Intersegment sales - - - -
Segment profit (loss) 148 (2,456) (2,308) 799
Total assets - 5,507 5,507 -
Nine Months Ended September 30, 1999:
Sales to external customers 240 - 240 363
Intersegment sales - - - -
Segment profit (loss) 52 (11,044) (10,992) 165
Total assets - 6,702 6,702 64
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Item 2. -- Management's Discussion and Analysis of Financial Condition And
---------------------------------------------------------------
Results of Operations
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Liquidity and Capital Resources
At September 30, 2000 we had cash and cash equivalents of $2.2 million and
net assets of $4.3 million, compared to $3.0 million and $1.0 million,
respectively, at December 31, 1999. Working capital totaled $1.2 million at
September 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 our clinical development program for FLOCOR, pending further
analysis of results from a recently completed Phase III clinical study (see
discussion below under "Results of Operations").
In April 2000, we entered into a Private Equity Line of Credit Agreement
which gives us 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 (See Note 4 to Financial Statements).
We believe that the proceeds of the transactions discussed above will allow
us to operate through the first half of 2001, but that additional funds will be
needed to significantly advance any of our technologies under development. We
are continuing to seek corporate partnerships for FLOCOR, and are also seeking
government support for additional clinical studies. In the near future, we
expect to conclude the first license agreement for our Tranzfect technology and
for 2001 we plan to focus attention on obtaining additional licenses for this
technology. Some of our additional capital requirements 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.
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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 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 $606,000 and $1,509,000 for the three month and
nine month periods ended September 30, 2000 as compared to $4,886,000 and
$10,827,000 for the same periods in 1999. Loss from continuing operations was
$606,000 and $2,308,000 for the three month and nine month periods ended
September 30, 2000 as compared to $5,138,000 and $10,992,000 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 $168,000 and $353,000 during
the three month and nine month periods ended September 30, 2000 as compared to
$75,000 and $240,000 in 1999. The increase in sales for the three month period
ended September 30, 2000 over the comparable period in 1999 is primarily due to
increased revenues from a single customer and is not necessarily indicative of a
continuing trend. Cost of sales were $82,000 and $179,000 for the three month
and nine month periods ended September 30, 2000 as compared to $52,000 and
$158,000 in 1999.
Interest income was $48,000 and $117,000 during the three month and nine
month periods ended September 30, 2000, as compared to $96,000 and $407,000 in
1999. The variance between years generally corresponds to fluctuating cash and
investment balances.
Grant income was $107,000 and $317,000 during the three month and nine
month periods ended September 30, 2000, as compared to $150,000 and $404,000 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 $81,000 and $250,000 during the three month and nine month
periods ended September 30, 2000 as compared to $30,000 and $118,000 in 1999.
Other income for the nine month period in 2000 includes $125,000 in fees paid by
Merck during the first quarter pursuant to an Evaluation Agreement for the
Company's Tranzfect technology.
Research and development expenditures were $388,000 and $1,616,000 during
the three month and nine month periods ended September 30, 2000, as compared to
$4,541,000 and $9,334,000 in 1999. Research and development expenditures are
higher in prior periods due to
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our clinical development activities for FLOCOR. During 1999, we conducted four
separate human clinical studies of FLOCOR, including a Phase III clinical trial
of FLOCOR for treatment of acute sickle cell crisis which was completed in
December 1999. 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, consultation with our scientific and
regulatory advisors and meetings with regulatory authorities. The Phase III
study did not achieve the high level of statistical significance required by the
FDA for the study as a whole; the results in children, however, were
statistically significant and our planned future studies will focus on the
pediatric sickle cell population. Based on our recent conversations with the
FDA, it is likely that either two small additional pivotal trials or one large
trial will be required for approval, along with one to two additional safety
studies. We believe there is a reasonable possibility of obtaining government
funding to support one or more of the remaining trials, which will minimize, but
not eliminate our expenditures. If we are successful in these discussions, we
would anticipate earliest funding approval in the fourth quarter of 2001. The
additional studies would take approximately two years to complete patient
enrollment, which might begin in the second or third quarter of 2002.
Beyond sickle cell disease, the potential uses of FLOCOR in critical care
applications are quite extensive and represent large, high-value markets. Some
of the potential applications include stroke, shock and cancer (drug delivery).
Dependent upon our ability to obtain additional funding, we plan to conduct
"proof of concept" studies in each field. Our strategy then will be to identify
potential partners to fund the clinical development of FLOCOR in these
indications.
During 2000, we turned some of our attention to our Tranzfect gene delivery
technology, although this effort has mostly involved personnel time and has not
required significant expenditures. Subsequent to completion of the first license
of this technology, we intend to work toward obtaining additional licenses and
in 2001 we plan to conduct additional physical chemistry and biological studies
with Tranzfect to support our licensing efforts.
Selling, general and administrative expenditures were $541,000 and
$1,551,000 during the three and nine month periods ended September 30, 2000, as
compared to $896,000 and $2,669,000 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 $-0- and $218,000, during the three
and nine month periods ended September 30, 2000 and $307,000 and $1,068,000
during the same periods in 1999. Excluding these charges, selling, general and
administrative expenditures were $541,000 and $1,333,000 during the 2000 periods
and $589,000 and $1,601,000 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 from discontinued operations, net of minority interest, was $-0-
and $799,000 during the three and nine month periods ended September 30, 2000,
as compared to $252,000 and $165,000 in 1999. Income from discontinued
operations relates to the operations of a former subsidiary, Vaxcel, Inc., which
we sold in September 1999 and the operations of Titermax,
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which we sold in June 2000 (see Note 5 to Financial Statements). Net income from
discontinued operations for the nine month period of 2000 includes 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.
PART II -- OTHER INFORMATION
-----------------
Item 6. -- Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Description
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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 September 11, 2000, we filed a report on Form 8-K reporting an amendment
to our Certificate of Incorporation.
12
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SIGNATURES
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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: October 30, 2000 By: /s/ Mark W. Reynolds
---------------- ------------------------------
Mark W. Reynolds
Vice President, Finance
(Chief Accounting Officer
and a duly authorized officer)
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