<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 18, 2000
--------------
CYTRX CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-15327 58-1642740
---------------------------- ------------------------ ----------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
154 Technology Parkway, Norcross, Georgia 30092
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 368-9500
---------------
-------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
------------
Effective June 15, 2000, we entered into a Purchase Agreement with Titermax
USA, Inc. (an unaffiliated company) whereby 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.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
The following consolidated financial statements of the Company (restated to
give effect to the transaction discussed above) are set forth on pages F-1 to
F-21 of this Current Report on Form 8-K.
Consolidated Financial Statements as of December 31, 1999
---------------------------------------------------------
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1997, 1998 and 1999
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Auditors
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
Condensed Consolidated Financial Statements as of March 31, 2000
----------------------------------------------------------------
Condensed Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999
Condensed Consolidated Statements of Operations for the Three Month Periods
Ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the Three Month Periods
Ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
(b) Pro Forma Financial Information
None.
(c) Exhibits
2.1 Purchase Agreement dated June 15, 2000 by and between CytRx
Corporation and Titermax USA, Inc.
<PAGE>
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 hereunto duly authorized.
CYTRX CORPORATION
-----------------
(Registrant)
Date: June 22, 2000 By: /s/ Mark W. Reynolds
------------- --------------------
Mark W. Reynolds
Vice President, Finance
<PAGE>
CYTRX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Consolidated Financial Statements as of December 31, 1999
---------------------------------------------------------
<S> <C>
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Operations
for the Years Ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
Report of Independent Auditors F-15
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-16
Condensed Consolidated Financial Statements as of March 31, 2000
----------------------------------------------------------------
Condensed Consolidated Balance Sheets
as of March 31, 2000 (unaudited) and December 31, 1999 F-17
Condensed Consolidated Statements of Operations (unaudited)
for the Three Month Periods Ended March 31, 2000 and 1999 F-18
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Month Periods Ended March 31, 2000 and 1999 F-19
Notes to Condensed Consolidated Financial Statements F-20
</TABLE>
F-1
<PAGE>
CYTRX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,031,893 $ 8,855,375
Short-term investments - 6,417,066
Accounts receivable 174,292 83,249
Note receivable - 300,000
Inventories 6,480 10,935
Other current assets 202,610 10,377
----------------- -----------------
Total current assets 3,415,275 15,677,002
Property and equipment, net 2,641,810 195,030
Other assets:
Acquired developed technology, net - 600,000
Other assets 70,978 169,536
----------------- -----------------
Total other assets 70,978 769,536
----------------- -----------------
Total assets $ 6,128,063 $ 16,641,568
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 629,738 $ 540,089
Accrued expenses and other current liabilities 2,121,999 1,409,034
----------------- -----------------
Total current liabilities 2,751,737 1,949,123
Long-term debt 650,000 -
Other long-term liabilities 1,693,638 -
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;
8,373,853 and 8,236,926 shares issued at December 31, 1999
and 1998, respectively 8,374 8,237
Additional paid-in capital 67,805,871 66,423,577
Treasury stock, at cost (633,816 and 625,816 shares held at
December 31, 1999 and 1998, respectively) (2,279,238) (2,270,238)
Accumulated deficit (64,502,319) (49,473,028)
----------------- -----------------
Total stockholders' equity 1,032,688 14,688,548
----------------- -----------------
Total liabilities and stockholders' equity $ 6,128,063 $ 16,641,568
================= =================
</TABLE>
See accompanying notes.
F-2
<PAGE>
CYTRX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997
(restated) (restated) (restated)
------------------- ------------------- ------------------
<S> <C> <C> <C>
Revenues:
Net service revenues $ 322,536 $ 350,789 $ 422,039
Interest income 462,634 1,007,019 751,526
Grant revenue 464,442 511,375 94,477
Other 141,848 244,353 535,303
------------------- ------------------- ------------------
1,391,460 2,113,536 1,803,345
Expenses:
Cost of service revenues 239,840 187,047 242,343
Research and development 12,811,925 7,305,835 3,605,408
Selling, general and administrative 3,609,613 2,312,062 2,281,413
Interest - 45,888 293,048
------------------- ------------------- ------------------
16,661,378 9,850,832 6,422,212
------------------- ------------------- ------------------
Loss from continuing operations before extraordinary item (15,269,918) (7,737,296) (4,618,867)
Income (loss) from discontinued operations 236,730 2,329,352 (1,676,612)
Minority interest in discontinued operations (3,897) (614,585) (242,487)
------------------- ------------------- ------------------
Loss before extraordinary item (15,029,291) (4,793,359) (6,052,992)
Extraordinary item:
Loss on early extinguishment of debt - (325,120) -
------------------- ------------------- ------------------
Net loss $(15,029,291) $(5,118,479) $(6,052,992)
=================== =================== ==================
Basic and diluted income (loss) per common
share:
Continuing operations $ (1.99) $ (1.01) $ (.62)
Discontinued operations 0.03 0.38 (.20)
Extraordinary item - (0.04) -
------------------- ------------------- ------------------
Net loss $ (1.96) $ (0.67) $ (0.82)
=================== =================== ==================
Basic and diluted weighted average shares outstanding 7,652,227 7,625,578 7,424,372
</TABLE>
See accompanying notes.
F-3
<PAGE>
CYTRX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional
Shares Paid-in Accumulated Treasury
Issued Amount Capital Deficit Stock Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 7,945,203 $7,945 $62,653,015 $(38,301,557) $(2,021,669) $ 22,337,734
Issuance of common stock 41,238 41 169,373 - - 169,414
Purchase of treasury stock - - - - (176,864) (176,864)
Unrealized gain on sale of shares
of subsidiary - - 2,706,397 - - 2,706,397
Beneficial conversion feature of
convertible debentures - - 264,706 - - 264,706
Net loss - - - (6,052,992) - (6,052,992)
--------------------------------------------------------------------------------
Balance at December 31, 1997 7,986,441 7,986 65,793,491 (44,354,549) (2,198,533) 19,248,395
Issuance of common stock 250,485 251 630,086 - - 630,337
Purchase of treasury stock - - - - (71,705) (71,705)
Net loss - - - (5,118,479) - (5,118,479)
--------------------------------------------------------------------------------
Balance at December 31, 1998 8,236,926 8,237 66,423,577 (49,473,028) (2,270,238) 14,688,548
Issuance of common stock 136,927 137 339,078 - - 339,215
Issuance of stock options/warrants - - 1,043,216 - - 1,043,216
Purchase of treasury stock - - - - (9,000) (9,000)
Net loss - - - (15,029,291) - (15,029,291)
--------------------------------------------------------------------------------
Balance at December 31, 1999 8,373,853 $8,374 $67,805,871 $(64,502,319) $(2,279,238) $ 1,032,688
================================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
CYTRX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(15,029,291) $(5,118,479) $ (6,052,992)
Adjustments to reconcile net
loss to net cash used in operating activities:
Depreciation 68,377 216,811 607,349
Amortization - 282,732 145,644
Gain on sales of subsidiary operations (240,196) (7,012,305) -
Gain on sale of real estate - (433,786) -
Charge for acquired incomplete research and development - - 951,017
Charge for beneficial conversion feature of
convertible debentures - - 264,706
Impairment loss (discontinued operations) - 3,212,615 -
Extraordinary loss on early extinguishment of debt - 325,120 -
Minority interest in net loss of subsidiary (3,897) (614,585) (242,487)
Stock option expense 1,043,216 - -
Changes in assets and liabilities:
Receivables (91,043) 1,082,390 (979,874)
Inventories 4,455 1,037,197 (2,263,290)
Notes receivable 300,000 100,000 -
Other assets (93,675) 98,545 537,902
Accounts payable 546,019 208,884 640,383
Unearned revenue - 172,380 (85,005)
Other liabilities 1,950,233 (495,323) 382,053
---------------- ----------------- -----------------
Total adjustments 3,483,489 (1,819,325) (41,602)
---------------- ----------------- -----------------
Net cash used in operating activities (11,545,802) (6,937,804) (6,094,594)
Cash flows from investing activities:
Purchases of held-to-maturity securities - (6,417,066) (22,103,140)
Maturities of held-to-maturity securities 6,417,066 - 32,399,348
Decrease in long-term investments - 5,326,647 -
Net proceeds from sales of subsidiary operations 240,196 8,336,985 -
Net proceeds from sale of technology 600,000 - -
Net proceeds from sale of real estate - 4,260,747 -
Net cash paid for acquisition - - (1,257,974)
Capital expenditures, net (2,515,157) (13,317) (273,755)
---------------- ----------------- -----------------
Net cash provided by investing activities 4,742,105 11,493,996 8,764,479
Cash flows from financing activities:
Net proceeds from issuance of common stock 339,215 125,880 169,414
Redemption of debt - (1,650,000) -
Purchase of treasury stock (9,000) (71,705) (176,864)
Proceeds from issuance of debt, net of issuance costs 650,000 - 1,803,366
---------------- ----------------- -----------------
Net cash provided by (used in) financing activities 980,215 (1,595,825) 1,795,916
---------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents (5,823,482) 2,960,367 4,465,801
Cash and cash equivalents at beginning of year 8,855,375 5,895,008 1,429,207
---------------- ----------------- -----------------
Cash and cash equivalents at end of year $ 3,031,893 $ 8,855,375 $ 5,895,008
================ ================= =================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ - $ 45,888 $ 23,342
================ ================= =================
</TABLE>
See accompanying notes
F-5
<PAGE>
CYTRX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Need for Additional Capital
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 Company also markets the services of its small group of human resources
professionals under the name of Spectrum Recruitment Research ("Spectrum") as a
way of offsetting the Company's cost of maintaining this function. Spectrum's
services are marketed primarily within metropolitan Atlanta, Georgia. The
Company's operational focus is on the development and commercialization of
pharmaceutical products; the Spectrum operations were formed as an ancillary
activity.
At December 31, 1999, the Company had net assets of $1,033,000 and working
capital of $664,000. During the first quarter of 2000, the Company terminated
the services of twelve of its employees as part of its efforts to conserve its
cash resources and has further reduced its operations by suspending most of its
technology development efforts requiring significant expenditures. The Company
has incurred losses from operations since inception, and the ongoing ability of
the Company to operate as a going concern with the current portfolio of
technologies under development will be determined by the results of technology
licensing efforts and/or the actual proceeds of any fund-raising activities. If
the Company is unable to raise significant additional funds, it will be limited
in its ability to advance its technologies under development.
During the first quarter of 2000, the Company took certain steps to improve its
financial condition (see Notes 7 and 16). The Company believes that the
proceeds of these transactions will allow the Company to operate throughout the
remainder of 2000, but that additional funds will be needed to significantly
advance any of the Company's technologies under development.
2. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of CytRx together with those of its majority-owned subsidiaries. As
more thoroughly discussed in Note 13, the Company's activities with regard to
its Titermax product line, as well as 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.
Cash Equivalents - The Company considers all highly liquid debt instruments
with an original maturity of 90 days or less to be cash equivalents. Cash
equivalents consist primarily of commercial paper and amounts invested in money
market accounts.
Investments - Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost. Marketable equity
securities and debt securities not classified as held-to-maturity are classified
as available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in a separate component of
stockholders' equity. Realized gains and losses are included in investment
income and are determined on a first-in, first-out basis (see Note 3).
Fair Value of Financial Instruments - The carrying amounts reported in the
balance sheet for cash and cash equivalents, investments, accounts receivable,
notes receivable and accounts payable approximate their fair values. The
carrying amount reported in the balance sheet for long-term debt approximates
its fair value. The fair value of such long-
F-6
<PAGE>
term debt is estimated using discounted cash flow analyses based on the
Company's current incremental borrowing rate for similar types of borrowing
arrangements.
Inventories - Inventories are valued at the lower of cost or market using the
first-in, first-out (FIFO) method.
Property and Equipment - Property and equipment are stated at cost and
depreciated using the straight-line method based on the estimated useful lives
(five years for equipment and furniture) of the related assets. Leasehold
improvements are amortized over the term of the related lease or other
contractual arrangement. As of December 31, 1999, the Company had capitalized
approximately $2.5 million of equipment and leasehold improvements which were
not placed in service as of that date.
Acquired Developed Technology and Other Intangibles - Acquired developed
technology and other intangible assets, primarily goodwill, (see Note 13) are
amortized over their estimated useful lives (fifteen years) on a straight-line
basis. Management continuously monitors and evaluates the realizability of
recorded acquired developed technology and other intangible assets to determine
whether their carrying values have been impaired. In accordance with Financial
Accounting Standards Board ("FASB") Statement No. 121, Accounting for the
Impairment of Long-Lived Assets, the Company records impairment losses on long-
lived assets used in operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of those assets.
Any impairment loss is measured by comparing the fair value of the asset to its
carrying amount. As more fully discussed in Note 13, during 1998 management
evaluated these assets and recorded a provision for impairment of such assets.
Patents and Patent Application Costs - Although the Company believes that its
patents and underlying technology have continuing value, the amount of future
benefits to be derived therefrom is uncertain. Patent costs are therefore
expensed rather than capitalized.
Accrued Expenses and Other Liabilities - Accrued expenses and other
liabilities at December 31 are summarized below (in thousands). The headings
correspond to the captions on the accompanying Balance Sheet.
<TABLE>
<CAPTION>
Accrued Expenses and Other
--------------------------
Current Liabilities Other Long-Term Liabilities
------------------- ---------------------------
1999 1998 1999 1998
---------------- ---------------- -------------- -----------
<S> <C> <C> <C> <C>
Clinical research activities $ 631 $ 455 $ 966 $ -
Scientific and regulatory activities 564 83 460 -
Chemical plant construction 146 - 228 -
Deferred revenue 233 261 - -
Employee incentives & severance 233 142 - -
Other miscellaneous 315 468 40 -
------ ------ ------ -----------
Total $2,122 $1,409 $1,694 $ -
====== ====== ====== ===========
</TABLE>
Basic and Diluted Loss per Common Share - Basic and diluted loss per share are
computed based on the weighted average number of common shares outstanding.
Common share equivalents (which may consist of options and warrants) are
excluded from the computation of diluted loss per share since the effect would
be antidilutive.
Shares Reserved for Future Issuance - As of December 31, 1999, the Company has
reserved approximately 3,200,000 of its authorized but unissued shares of common
stock for future issuance pursuant to stock options and warrants and employee
benefit plans.
Revenue Recognition - Sales are recognized at the time products are shipped or
services rendered. The Company does not require collateral or other securities
for sales made on credit. Revenues from collaborative research arrangements and
grants are generally recorded as the related costs are incurred. The costs
incurred under such arrangements approximated the revenues reported in the
accompanying statements of operations.
Sale of Stock by a Subsidiary - The Company does not recognize gains on the
sale of previously unissued stock of subsidiaries when there are significant
uncertainties regarding the Company's ability to ultimately realize its
investment in the subsidiary. Such gains are reflected as additional paid-in
capital in the Company's consolidated financial statements.
Stock-based Compensation - The Company grants stock options and warrants for a
fixed number of shares to key employees and directors with an exercise price
equal to the fair market value of the shares at the date of grant. The Company
accounts for stock option grants and warrants in accordance with APB Opinion No.
25, Accounting for Stock
F-7
<PAGE>
Issued to Employees ("APB 25"), and, accordingly, recognizes no compensation
expense for the stock option grants and warrants for which the terms are fixed.
For stock option grants and warrants which vest based on certain corporate
performance criteria, compensation expense is recognized to the extent that the
quoted market price per share exceeds the exercise price on the date such
criteria are achieved or are probable. In October 1995, the FASB issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-based
Compensation ("Statement 123"), which provides an alternative to APB 25 in
accounting for stock-based compensation issued to employees. However, the
Company has continued to account for stock-based compensation in accordance with
APB 25 (See Note 9). The Company has also granted stock options and warrants to
certain consultants and other third parties. Stock options and warrants granted
to consultants and other third parties are valued at the fair market value of
the options and warrants granted or the services received, whichever is more
reliably measurable. Expense is recognized in the period in which the services
are received.
Concentrations of Credit Risk - Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash and cash equivalents. The Company maintains cash and cash equivalents in
large well-capitalized financial institutions and the Company's investment
policy disallows investment in any debt securities rated less than "investment-
grade" by national ratings services.
Use of Estimates - The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Segment Information - Effective January 1, 1998, the Company adopted FASB
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information ("Statement 131"). Statement 131 superceded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. See Note 15.
3. Investments
At December 31, 1999, the Company held no investments. At December 31, 1998,
the Company had classified all of its investments (consisting entirely of
corporate debt securities) as held-to-maturity, of which $8,457,000 and
$6,417,000 were included in cash and cash equivalents and short-term
investments, respectively, in the accompanying consolidated balance sheets.
Investments held at December 31, 1998 are summarized below (in thousands):
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
Cost $14,874
Gross Unrealized Gains 3
Gross Unrealized Losses (38)
-------
Fair Market Value $14,839
=======
</TABLE>
4. Property and Equipment
Property and equipment at December 31 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Equipment and furnishings $2,200 $ 799
Leasehold improvements 969 -
------ -----
3,169 799
Less accumulated depreciation (527) (604)
------ -----
$2,642 $ 195
====== =====
</TABLE>
5. 6% Convertible Debentures
In October 1997, the Company privately placed with certain investors
$2,000,000 of convertible notes (the "Debentures") with an original maturity of
October, 2001. The Debentures were convertible on and after December 31, 1997
into shares of CytRx Common Stock at a price of the lesser of (a) 85% of the
average closing bid price for the 10 days preceding the conversion, or (b) $5.68
per share. Such beneficial conversion feature was determined to have a fair
F-8
<PAGE>
value of $265,000 at the date of issuance and was amortized to interest expense
from the date of issuance through the date the Debentures first became
convertible. The Debentures were sold at par and bore interest at a rate of 6%
per annum. The provisions for conversion of the Debentures allowed the Company,
at its discretion, to disallow conversions below $4.00 per share by redeeming
the amount attempted to be converted at a 10% premium. Also, in connection with
the issuance of the Debentures, the investors were issued two-year warrants to
purchase 40,000 shares of CytRx Common Stock at an exercise price of $5.68. The
fair value of such warrants was determined to be insignificant. The warrants
expired unexercised in 1999.
In February and March 1998, $500,000 of the Debentures were converted into
204,104 shares of common stock. In February and May 1998, $1,500,000 of the
Debentures were redeemed by the Company and total redemption premiums of
$150,000 were paid. In addition, $175,000 of previously capitalized debt issue
costs were expensed. The redemption premiums and debt issue costs ($325,000
total) are reflected as an extraordinary item in the statement of operations as
loss on early extinguishment of debt. At December 31, 1998 and 1999 there were
no remaining outstanding Debentures.
6. Long Term Debt
In June 1999, the Company entered into a Purchase Agreement for the design and
construction of manufacturing equipment for commercial production of FLOCOR(TM).
The Purchase Agreement called for, among other things, certain progress payments
to be made, with the final payment of $650,000 due 18 months after installation
of the equipment or 12 months after FDA approval of FLOCOR(TM) (the "Note"). The
Note bears interest of 12% annually, payable monthly beginning in the first
month after installation of the equipment. CytRx accepted installed delivery of
the equipment in February 2000; the Note is reflected in the accompanying
Balance Sheet as Long Term Debt. In February 2000, the Note was cancelled in
exchange for a cash payment of $200,000 and the issuance of Common Stock (see
Note 7).
7. 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 has
accordingly been classified as long-term liabilities on the accompanying Balance
Sheet. The Company also cancelled $650,000 of long-term debt (see Note 6) in
exchange for a cash payment of $200,000 and the issuance of 180,000 shares of
CytRx Common Stock.
8. Commitments and Contingencies
Rental expense from continuing operations under operating leases during 1999,
1998 and 1997 approximated $212,000, $154,000 and $13,000, respectively.
Minimum annual future obligations for operating leases are $160,000, $165,000,
$171,000, $178,000, $185,000 and $678,000 in 2000, 2001, 2002, 2003, 2004 and
2005 and beyond, respectively. Aggregate minimum future subrentals the Company
expects to receive under noncancellable subleases total approximately $43,000 at
December 31, 1999.
9. Stock Options and Warrants
CytRx has stock option plans pursuant to which certain key employees and
directors are eligible to receive incentive and/or nonqualified stock options to
purchase shares of CytRx's common stock. The options granted under the plans
generally become exercisable over a three year period from the dates of grant
and have lives of ten years. Certain options granted to the Company's executive
officers and others contain alternative or additional vesting provisions based
on the achievement of corporate objectives. Additionally, the Company has
granted warrants to purchase shares of the Company's common stock to its
President and Chief Executive Officer subject to vesting criteria as set forth
in his warrant agreements; such warrants have lives of ten years from the dates
of grant. Exercise prices of all options and warrants for employees and
directors are set at the fair market values of the common stock on the dates of
grant. During 1998, the Company repriced all outstanding options held by
current employees to the then current market value. No compensation expense was
recorded for employees or directors for the three years ended December 31, 1998;
however, during 1999 the vesting criteria for 680,238 options and warrants was
achieved, resulting in $689,000 of compensation expense which was recorded in
the first quarter of 1999. During 1999, services were received in exchange for
options and warrants issued to certain consultants. Aggregate non-cash charges
of $355,000 were recognized in 1999 for the services received.
F-9
<PAGE>
A summary of the Company's stock option and warrant activity and related
information for the years ended December 31 is shown below.
<TABLE>
<CAPTION>
Warrants and Options Weighted Average Exercise Price
-------------------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
------------------ ----------- ----------- ----------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 2,258,308 1,439,297 1,237,031 $1.17 $4.87 $5.00
Granted 961,750 902,488 221,700 2.25 2.65 4.35
Exercised (12,103) - - 1.00 - -
Forfeited (70,103) (83,477) (19,434) 5.91 4.37 6.64
Expired - - - - - -
---------- ---------- ----------
Outstanding - end of year 3,137,852 2,258,308 1,439,297 $1.43 $1.17 $4.87
========== ========== ==========
Exercisable at end of year 2,170,107 1,104,620 940,541 $1.25 $1.33 $5.22
Weighted average fair value of
options and warrants granted
during the year: $1.59 $2.30 $3.97
</TABLE>
The following table summarizes additional information concerning options and
warrants outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------- -----------------------------------
Weighted
Average
Remaining Weighted Number Weighted
Range of Contractual Average Of Shares Average
Exercise Prices Number of Shares Life (years) Exercise Price Exercisable Exercise Price
---------------- ---------------- ------------ -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.00 2,126,102 6.3 $1.00 1,830,107 $1.00
2.13 - 2.75 999,250 6.9 2.27 332,500 2.50
7.75 12,500 5.2 7.75 7,500 7.75
--------- ---------
3,137,852 6.5 1.43 2,170,107 1.25
========= =========
</TABLE>
The Company has elected to follow APB 25 and related Interpretations in
accounting for employee stock options and warrants because, as discussed below,
the alternative fair value accounting provided for under Statement 123 requires
use of option valuation models that were not developed for use in valuing
employee stock options.
Pro forma information regarding net loss and loss per share is required by
Statement 123, which also requires that the information be determined as if the
Company had accounted for employee stock options granted and warrants issued
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for the Company's options and warrants to employees was estimated
at the date of grant using a Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------ ------------
<S> <C> <C> <C>
Weighted average risk free interest rate 6.27% 5.64% 6.22%
Dividend yields 0% 0% 0%
Volatility factors of the expected market
price of the Company's common stock 1.046 1.026 1.055
Weighted average life of the option (years) 8 8 8
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-10
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the
employee options and warrants is amortized to expense over the options' vesting
periods. The Company's pro forma information is as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Pro forma net loss $(16,505) $(6,521) $(6,969)
Pro forma net loss per share (basic
and diluted) $ (2.16) $ (.86) $ (.94)
</TABLE>
10. Shareholder Protection Rights Plan
Effective April 16, 1997, the Company's Board of Directors declared a
distribution of one Right for each outstanding share of the Company's common
stock to stockholders of record at the close of business on May 15, 1997 and for
each share of common stock issued by the Company therafter and prior to a Flip-
in Date (as defined below). Each Right entitles the registered holder to
purchase from the Company one-ten thousandth (1/10,000th) of a share of Series A
Junior Participating Preferred Stock, at an exercise price of $30. The Rights
are generally not exercisable until 10 business days after an announcement by
the Company that a person or group of affiliated persons (an "Acquiring Person")
has acquired beneficial ownership of 15% or more of the Company's then
outstanding shares of common stock (a "Flip-in Date").
In the event the Rights become exercisable as a result of the acquisition of
shares, each Right will enable the owner, other than the Acquiring Person, to
purchase at the Right's then current exercise price a number of shares of common
stock with a market value equal to twice the exercise price. In addition,
unless the Acquiring Person owns more than 50% of the outstanding shares of
common stock, the Board of Directors may elect to exchange all outstanding
Rights (other than those owned by such Acquiring Person) at an exchange ratio of
one share of common stock per Right. All Rights that are owned by any person on
or after the date such person becomes an Acquiring Person will be null and void.
The Rights have been distributed to protect the Company's stockholders from
coercive or abusive takeover tactics and to give the Board of Directors more
negotiating leverage in dealing with prospective acquirors.
11. Retirement Plan
The Company maintains a defined contribution retirement plan (the "Plan")
covering employees of the Company. Historically, at the Board of Directors'
discretion, the Company has matched 50% of the participant's contribution with
common stock. The Company's matching contribution vests over 3 years. Total
expense for the Plan for the years ended December 31, 1999, 1998 and 1997 was
approximately $69,000, $110,000 and $176,000, respectively, of which $1,000,
$44,000 and $120,000 related to discontinued operations for the years ended
December 31, 1999, 1998 and 1997, respectively. During the first quarter of
2000, the Company terminated the Plan.
12. Income Taxes
For income tax purposes, CytRx and its subsidiaries have an aggregate of
approximately $53.1 million of net operating losses available to offset against
future taxable income, subject to certain limitations. Such losses expire in
2000 through 2019. CytRx also has an aggregate of approximately $6.3 million of
research and development and orphan drug credits available for offset against
future income taxes which expire in 2000 through 2014.
Deferred income taxes reflect the net effect of temporary differences between
the financial reporting carrying amounts of assets and liabilities and income
tax carrying amounts of assets and liabilities. The components of the Company's
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 20,163,000 $ 18,677,000
Tax credit carryforward 6,278,000 1,245,000
Other 108,000 1,218,000
------------ ------------
Total deferred tax assets 26,549,000 21,140,000
Deferred tax liabilities:
Acquired developed technology and other intangibles - (228,000)
Depreciation and other (185,000) (143,000)
------------ ------------
Total deferred tax liabilities (185,000) (371,000)
------------ ------------
Net deferred tax assets 26,364,000 20,769,000
Valuation allowance (26,364,000) (20,769,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
Based on assessments of all available evidence as of December 31, 1999 and
1998, management has concluded that the respective deferred income tax assets
should be reduced by valuation allowances equal to the amounts of the deferred
income tax assets.
F-11
<PAGE>
13. Discontinued Operations
Vaxcel, Inc.
------------
On June 2, 1999, CytRx entered into a Stock Acquisition Agreement with A-Z
Professional Consultants, Inc. ("A-Z") for the sale of CytRx's equity interest
in Vaxcel. The sale was consummated on September 9, 1999. Pursuant to the
agreement, A-Z purchased 9,625,000 shares of common stock of Vaxcel from CytRx
for a cash purchase price of $319,000. After consummation of this transaction,
CytRx has no further equity interest in Vaxcel.
Net losses (net of minority interest) associated with Vaxcel included in
income (loss) from discontinued operations were approximately $(40,000),
$(4,319,000) and $(2,357,000) for the years ended December 31, 1999, 1998 and
1997, respectively. A summary of the assets and liabilities of Vaxcel which are
included in the consolidated balance sheets at December 31, 1998 is as follows
(in thousands):
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Current assets $ 314
Property and equipment, net 7
Other assets 655
-----
Total assets $ 976
=====
Total liabilities $ 618
=====
</TABLE>
Termination of Optivax(R) License by CytRx -- In July 1999, CytRx terminated
its license of Optivax(R) to Vaxcel due to Vaxcel's cessation of operations
within the meaning of the license agreement. Concurrently with the termination
of the Optivax(R) license, all of Vaxcel's rights and obligations pursuant to
its license of the Optivax(R) technology to Corixa Corporation were assigned to
CytRx.
Impairment Loss - In its efforts to raise additional capital during 1998 and
1999, Vaxcel solicited bids for the sublicense or purchase of Vaxcel's acquired
developed technology, either together with or separately from Vaxcel's other
technologies. During the fourth quarter of 1998, the results of these efforts
indicated to management that the acquired developed technology might be
impaired. As a result of this indication, Vaxcel performed an evaluation to
determine, in accordance with Statement 121, whether future cash flows
(undiscounted and without interest charges) expected to result from the use and
eventual disposition of the acquired developed technology would be less than its
aggregate carrying amount and an allocation of goodwill resulting from the
Zynaxis merger. Statement 121 requires that when a group of assets being tested
for impairment was acquired as part of a business combination accounted for
using the purchase method of accounting, any goodwill that arose as part of the
transaction must be included as part of the asset grouping. As a result of the
evaluation, management determined that the estimated future cash flows expected
to be generated by the acquired developed technology would be less than its
carrying amount and allocated goodwill, and therefore the asset was impaired as
defined by Statement 121. Consequently, the original cost basis of the acquired
developed technology and allocated goodwill were reduced to reflect the fair
market value at the date the evaluation was made, resulting in a $3,213,000
impairment loss included in discontinued operations for the year ended December
31, 1998. In determining the fair market value of the asset, management
considered the transaction described below, among other factors.
Sale of Technology by Vaxcel -- 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.
Proceutics, Inc.
----------------
In February 1998, CytRx's wholly-owned subsidiary, Proceutics 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 consisting of a laboratory building which it leased to Oread. The
laboratory building was subsequently sold in May 1998 (see Note 14). Prior to
consummation of this transaction, Proceutics provided preclinical development
services to the pharmaceutical industry.
Net income (loss) associated with Proceutics included in income (loss) from
discontinued operations was approximately $1,387,000 and $(138,000) for the
years ended December 31, 1998 and 1997, respectively (see Note 15).
F-12
<PAGE>
A $782,000 gain related to the sale of non-real estate assets is included in
income from discontinued operations for 1998, as well as a $434,000 gain on the
sale of Proceutics' real estate assets (see Note 14).
CytRx Animal Health, Inc.
-------------------------
In April 1998, CytRx's wholly-owned subsidiary, CytRx Animal Health,
consummated the sale of substantially all of its assets related to its cattle
marketing operations to VetLife, LLC ("VL LLC") (an unaffiliated company) for a
total purchase price of $7,500,000, subject to certain working capital
adjustments, plus contingent payments based on certain events and future sales
of specified products of VL LLC and its affiliates. CytRx Animal Health
retained $5.3 million in investments that were pledged to secure a letter-of-
credit, as well as the rights to certain technologies licensed from CytRx.
Prior to consummation of this transaction, CytRx Animal Health was engaged in
marketing and distributing products to enhance North American beef cattle
productivity.
Net income associated with CytRx Animal Health included in income (loss) from
discontinued operations was approximately $5,645,000 and $868,000 for the years
ended December 31, 1998 and 1997, respectively (see Note 15). A gain related to
the sale of $6,230,000 is included in income from discontinued operations for
1998.
Titermax
--------
Since 1987 CytRx has manufactured, marketed and distributed Titermax, 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 $280,000, $231,000 and $193,000
for the years ended December 31, 1999, 1998 and 1997, respectively (see Note
15). A gain related to the sale of approximately $685,000 will be recorded in
the second quarter of 2000 and classified as discontinued operations.
14. Sale of Real Estate
In May 1998, CytRx and Proceutics consummated the sale of the two buildings
owned by them at 150 and 154 Technology Parkway, Norcross, Georgia, to
Alexandria Real Estate Equities, Inc. ("Alexandria") for $4.5 million.
Proceutics' rights and obligations under the lease to Oread (See Note 13) were
assigned to Alexandria, and CytRx leases the building at 154 Technology Parkway
from Alexandria. The lease term extends 10 years and contains escalating rent
payments over the term. CytRx will also be responsible for all operating
expenses for the property. Proceutics recorded a gain of $434,000 for the sale
of its building. A gain of $279,000 on the sale/leaseback of the CytRx building
was deferred and will be amortized over the ten year lease period.
15. Segment Reporting
The Company has six reportable segments: Research Products (TiterMax),
Recruiting Services (Spectrum), Product Development (core business of
development and commercialization of pharmaceutical-related products), Cattle
Marketing Operations (CytRx Animal Health), Vaccine Development (Vaxcel) and
Pharmaceutical Services (Proceutics). See Notes 1 and 13 for a description of
these operations.
The Company adopted FASB Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information, in 1998 which changes the way the Company
reports information about its operating segments. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies (see Note 2). The Company evaluates performance
of its operating segments based primarily on profit or loss from operations
before income taxes. Summarized financial information concerning the Company's
reportable segments is shown in the following table.
<TABLE>
<CAPTION>
Continuing Operations Discontinued Operations
---------------------------------- -----------------------------------------------------------------
Total Cattle Total
Recruiting Product Continuing Research Marketing Pharmaceutical Vaccine Discontinued
(in thousands) Services Development Operations Products Operations Services Development Operations
----------------------------- ---------- ----------- ----------- -------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999:
-----
Sales to external customers $323 $ - $ 323 $500 $ - $ - $ - $ 500
Intersegment sales - - - - - - - -
Collaborative, grant & other
revenue - 606 606 - - - 134 134
Interest income - 463 463 - - - 7 7
Interest expense - - - - - - 4 4
Depreciation and amortization - 62 62 - - - 6 6
Segment profit (loss) 75 (15,344) (15,269) 280 - - (40) 240
Total assets - 6,128 6,128 - - - - -
Capital expenditures - 2,515 2,515 - - - - -
</TABLE>
F-13
<PAGE>
15. Segment Reporting (continued)
<TABLE>
<CAPTION>
Continuing Operations Discontinued Operations
--------------------------------- -------------------------------------------------------------------
Total Cattle Total
Recruiting Product Continuing Research Marketing Pharmaceutical Vaccine Discontinued
(in thousands) Services Development Operations Products Operations Services Development Operations
--------------------------- ------- ----------- ----------- ----------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
----
Sales to external customers $351 $ - $ 351 481 $ 4,383 $ 419 $ - $ 5,283
Intersegment sales - - - - - 131 - 131
Collaborative, grant & other
revenue - 756 756 - - - 167 167
Interest income - 1,007 1,007 - - 22 13 35
Interest expense - 46 46 - - 3 7 10
Depreciation and amortization - 120 120 - 8 78 294 380
Unusual Items:
Gain on sale of business - - - - 6,230 782 - 7,012
Gain on sale of real estate - - - - - 434 - 434
Provision for asset impairment - - - - - - 3,213 3,213
Loss on early debt
extinguishment - 325 325 - - - - -
Segment profit (loss) 114 (8,176) (8,062) 231 5,645 1,387 (4,319) 2,944
Total assets - 15,666 15,666 - - - 976 976
Capital expenditures - 112 112 - - 12 4 16
1997:
---------------------------- --
Sales to external customers 422 - 422 456 13,469 1,984 - 15,909
Intersegment sales - - - - - 853 - 853
Collaborative, grant & other
revenue - 630 630 - - - 243 243
Interest income - 752 752 - - 2 46 48
Interest expense - 293 293 - - 36 1 37
Depreciation and amortization - 171 171 - 16 365 201 582
Segment profit (loss) 77 (4,696) (4,619) 193 868 (138) (2,357) (1,434)
Total assets - 11,477 11,477 - 3,795 4,176 5,458 13,429
Capital expenditures - 98 98 - 11 165 - 176
</TABLE>
16. Subsequent Event (Unaudited)
Effective March 24, 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
underlying the warrants. In addition, the Investors will, upon effective
registration of the shares, 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. In lieu of these additional shares and
warrants, the Investors have the option to 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.
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
CytRx Corporation
We have audited the accompanying consolidated balance sheets of CytRx
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CytRx Corporation at December 31, 1999 and 1998 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 15, 2000, except for Note 13,
paragraphs 10 and 11, as to
which the date is
June 15, 2000
F-15
<PAGE>
CYTRX CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Period
------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserve Deducted in the Balance Sheet
from the Asset to Which it Applies:
Allowance for Bad Debts
Year ended December 31, 1999 $ -- $ -- $ -- $ -- $ --
Year ended December 31, 1998 22,187 -- -- 22,187 --
Year ended December 31, 1997 48,430 44,850 -- 71,093 22,187
Allowance for Deferred Tax Assets
Year ended December 31, 1999 $20,769,000 $5,595,000 $ -- $ -- $26,364,000
Year ended December 31, 1998 17,684,000 3,085,000 -- -- 20,769,000
Year ended December 31, 1997 15,200,000 2,484,000 -- -- 17,684,000
</TABLE>
F-16
<PAGE>
CYTRX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,219,486 $ 3,031,893
Accounts receivable 390,951 174,292
Inventories 5,142 6,480
Other current assets 130,813 202,610
--------------- -------------
Total current assets 3,746,392 3,415,275
Property and equipment, net 2,616,358 2,641,810
Other assets 60,978 70,978
--------------- -------------
Total assets $ 6,423,728 $ 6,128,063
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 629,850 $ 629,738
Accrued liabilities 1,392,993 2,121,999
--------------- -------------
Total current liabilities 2,022,843 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 March 31, 2000
and December 31, 1999, respectively 10,214 8,374
Additional paid-in capital 72,072,318 67,805,871
Treasury stock, at cost (633,816 shares held at March 31, 2000
and December 31, 1999) (2,279,238) (2,279,238)
Accumulated deficit (65,402,409) (64,502,319)
--------------- -------------
Total stockholders' equity 4,400,885 1,032,688
--------------- -------------
Total liabilities and stockholders' equity $ 6,423,728 $ 6,128,063
=============== =============
</TABLE>
See accompanying notes.
F-17
<PAGE>
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended March 31,
------------------------------------
2000 1999
(Restated) (Restated)
------------ ------------
<S> <C> <C>
Revenues:
Net sales $ 100,128 $ 65,730
Interest income 30,889 176,109
Grant income 73,211 27,461
Other 146,314 49,769
------------ ------------
350,542 319,069
Expenses:
Cost of sales 52,420 68,540
Research and development 674,574 2,358,061
Selling, general and administrative 563,452 1,160,176
------------ ------------
1,290,446 3,586,777
------------ ------------
Loss from continuing operations (939,904) (3,267,708)
Income (Loss) from discontinued operations 39,814 (12,116)
Minority interest in discontinued operations - (3,897)
------------ ------------
Net loss $ (900,090) $ (3,275,927)
============ ============
Basic and diluted loss per common share:
Continuing operations $ (.12) $ (.43)
Discontinued operations .01 -
------------ ------------
Net loss $ (0.11) (0.43)
============ ============
Basic and diluted weighted average shares outstanding 8,070,164 7,623,394
</TABLE>
See accompanying notes.
F-18
<PAGE>
CYTRX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Ended March 31,
---------------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (900,090) $ (3,275,927)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 40,500 29,760
Stock option expense 156,075 726,621
Minority interest in net loss of subsidiary - (3,897)
Net change in assets and liabilities (2,556,056) (214,498)
-------------- --------------
Total adjustments (2,359,481) 537,986
-------------- --------------
Net cash used by operating activities (3,259,571) (2,737,941)
Cash flows from investing activities:
Decrease in short-term investments - 6,417,066
Capital expenditures, net (15,048) (182,761)
-------------- --------------
Net cash (used) provided by investing activities (15,048) 6,234,305
Cash flows from financing activities:
Net proceeds from issuance of common stock 4,112,212 18,659
Retirement of debt (650,000) -
Purchase of treasury stock - (9,000)
-------------- --------------
Net cash provided by financing activities 3,462,212 9,659
-------------- --------------
Net increase in cash and cash equivalents 187,593 3,506,023
Cash and cash equivalents at beginning of period 3,031,893 8,855,375
-------------- --------------
Cash and cash equivalents at end of period $ 3,219,486 $ 12,361,398
============== ==============
</TABLE>
See accompanying notes.
F-19
<PAGE>
CYTRX CORPORATION
-----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
March 31, 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 March 31,
2000 and for the three month periods ended March 31, 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.
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 underlying the
warrants. In addition, the Investors will, upon effective registration of the
shares, 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. In lieu of these additional shares and warrants, the
Investors have the option to 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.
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
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<PAGE>
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 to purchase up to 200,000 shares of Common Stock at a per share exercise
price of $3.438. The warrant is exercisable for a period of three years.
5. 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 March 31, 2000:
Sales to external customers $ 100 $ - $ 100 $ 64
Intersegment sales - - - -
Segment profit (loss) 43 (983) (940) 40
Total assets - 6,424 6,424 -
Three Months Ended March 31, 1999:
Sales to external customers 66 - 66 136
Intersegment sales - - - -
Segment profit (loss) (1) (3,266) (3,267) (9)
Total assets - 13,164 13,164 805
</TABLE>
6. Sale of Titermax
Since 1987 CytRx has manufactured, marketed and distributed Titermax, 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 $40,000 and $83,000 for
the three months ended March 31, 2000 and 1999, respectively (see Note 5). A
gain related to the sale of approximately $685,000 will be recorded in the
second quarter of 2000 and classified as discontinued operations.
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