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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-26918
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CYTOCLONAL PHARMACEUTICS INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 75-2402409
- -------------------------------- ---------------------
(State or Other jurisdiction of (I.R.S. Employer
incorporation or Organization) Identification Number)
9000 Harry Hines Boulevard, Suite 330, Dallas, Texas 75235
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(Address of Principal Executive Offices)
(214)-353-2922
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 7,675,281 shares of
common stock, $.01 par value, outstanding as of November 4, 1996.
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Transitional Small Business Disclosure Format (check one):
Yes No X
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CYTOCLONAL PHARMACEUTICS INC
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 -- Financial Statements:
Condensed Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995 3
Condensed Statements of Operations for the Three
Months Ended September 30, 1995 and 1996 (unaudited)
and for the Nine Months Ended September 30, 1995
and 1996 (unaudited)and the Period From September
11, 1991 (Inception) Through September 30, 1996 4
Condensed Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and 1996 (unaudited)
and the Period From September 11, 1991
(Inception) Through September 30, 1996 5
Notes to Financial Statements 6-7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 11 12
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Item 1. Financial Statements
CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
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ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash $5,442,000 $3,741,000
Prepaid expenses and other current assets 31,000 15,000
---------- ----------
Total current assets 5,473,000 3,756,000
Equipment, net 60,000 94,000
Patent rights, less accumulated amortization of
$312,000 and $370,000 938,000 880,000
Investment in joint venture - at equity 39,000 21,000
Other assets 5,000 6,000
---------- ----------
T O T A L $6,515,000 $4,757,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 235,000 517,000
Royalties payable 1,250,000 1,250,000
---------- ----------
Total liabilities 1,485,000 1,767,000
---------- ----------
Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000 shares
authorized; 1,268,787 and 1,271,240 shares of
Series A convertible preferred issued and
outstanding at December 31, 1995 and
September 30, 1996, respectively (liquidation
value $3,172,000 and $3,178,000 at 13,000 13,000
December 31, 1995 and September 30, 1996, respectively)
Common Stock - $.01 par value, 30,000,000 shares
authorized: 7,563,500 and 7,687,932 shares issued
and outstanding at December 31, 1995 and
September 30, 1996, respectively 76,000 77,000
Additional paid-in capital 13,903,000 13,990,000
Deficit accumulated during the development stage (8,962,000) (11,090,000)
---------- ----------
Total Stockholders' Equity 5,030,000 2,990,000
T O T A L $6,515,000 $4,757,000
========== ==========
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3
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CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
September 11,
1991
Three Months Ended Nine Months Ended (inception)
September 30, September 30, through
----------------------- ------------------------- September 30,
1995 1996 1995 1996 1996
-------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development $282,000 $454,000 $881,000 $1,183,000 $5,914,000
General and administrative 273,000 403,000 888,000 1,110,000 4,906,000
--------- --------- ----------- ----------- ------------
555,000 857,000 1,769,000 2,293,000 10,820,000
--------- --------- ----------- ----------- ------------
Other (Income) expenses:
Interest (income) (1,000) (49,000) (6,000) (165,000) (368,000)
Interest expense 124,000 347,000 559,000
--------- --------- ----------- ----------- ------------
123,000 (49,000) 341,000 (165,000) 191,000
--------- --------- ----------- ----------- ------------
NET (LOSS) ($678,000) ($808,000) ($2,110,000) ($2,128,000) ($11,011,000)
========= ========= =========== =========== ============
Net loss per common share ($0.14) ($0.12) ($0.44) ($0.31)
========= ========= =========== ===========
Weighted average number of
shares outstanding 5,249,000 7,687,000 5,328,000 7,631,000
========= ========= =========== ===========
</TABLE>
4
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CYTOCLONAL PHARMACEUTICS INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
September 11,
1991
Nine Months Ended (Inception)
September 30, through
------------------------------ September 30,
1995 1996 1996
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ($2,110,000) ($2,128,000) ($11,011,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 85,000 86,000 540,000
Amortization of debt discount 162,000 0 269,000
Amortization of debt costs 318,000 0 554,000
Value assigned to warrants and options 0 88,000 104,000
Equity in loss of joint venture 17,000 18,000 211,000
Changes in operating assets and
liabilities:
(Increase) decrease in other assets 1,000 15,000 (25,000)
Increase in accounts payable
and accrued expenses 594,000 282,000 517,000
----------- ----------- ------------
Net cash (used in) operating
activities (933,000) (1,639,000) (8,841,000)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of equipment 0 (62,000) (183,000)
Investment in joint venture 0 0 (233,000)
----------- ----------- ------------
Net cash (used in) investing
activities 0 (62,000) (416,000)
=========== =========== ============
Cash flows from financing activities:
Net proceeds from sales of preferred and
common stock 0 0 13,750,000
Proceeds from bridge loans, net of expenses 758,000 0 2,684,000
Deferred registration costs (213,000) 0 0
Repayment of bridge loans 0 0 (3,238,000)
Principal payments of equipment notes 0 0 (76,000)
Dividends paid 0 0 (122,000)
----------- ----------- ------------
Net cash provided by
financing activities 545,000 0 12,998,000
----------- ----------- ------------
NET (DECREASE) IN CASH (388,000) (1,701,000) 3,741,000
Cash at beginning of period 395,000 5,442,000 0
----------- ----------- ------------
CASH AT END OF PERIOD $7,000 $3,741,000 $3,741,000
=========== =========== ============
</TABLE>
5
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CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
(1) Financial Statement Presentation
The unaudited financial statements of Cytoclonal Pharmaceutics Inc.
(the "Company") herein have been prepared pursuant to the rules and
regulations of the Securities and exchange Commission(SEC) and, in the
opinion of management, reflect all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the results of
operations for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements,
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations.
However, management believes that the disclosures are adequate to make
the information presented not misleading. These financial statements
and the notes thereto should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) New Agreements
In February 1996, the Company entered into two license agreements with
the Regents of the University of California, granting to the Company
exclusive rights to: (1) a pending patent, entitled Inhibition of Cyst
Formation by Cytoskeletal Specific Drugs that makes use of various
drugs, one of which is Taxol and (2) technology in the field of
Pharmacological Treatment of Polycystic Kidney Disease. Pursuant to the
agreements, the Company paid license issue fees and must pay yearly
license maintenance fees until the Company is commercially selling a
product based on the technology, at which time a royalty based on net
sales will be due.
In June 1996, the Company entered into a Patent License Agreement with
the Board of Regents of the University of Texas System whereby the
Company received an exclusive royalty-bearing license to manufacture,
have manufactured, use, sell and/or sublicense products related to a
U.S. patent Application entitled "A Method for Ranking Sequences to
Select Target Sequence Zones of Nucleic Acids." The technology has
identified optimum regions within genes to bind Antisense products.
Antisense products are under development to control genes involved
inhuman diseases such as cancer, diabetes or AIDS. This discovery
potentially has broad applications to many human and viral genes
involved in human disease.
In July 1996, the Company entered into an agreement with the Washington
State University Research Foundation ("WSURF") whereby the Company
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received an exclusive, world-wide license to technology related to
genes for enzymes in the biosynthetic pathway for Taxol. The Company is
required to pay WSURF a yearly license fee as well as royalties on
commercial sales.
(3) R & D Agreement Extended
The June 1992, agreement between the Company and the University of
Texas at Dallas ("UTD") has been extended through May 1998. Pursuant to
the amended agreement, UTD performs certain research and development
activities relating to anti-sense compounds and related technology for
use in humans as therapeutic and diagnostic products.
(4) Stock Option Plan
In April 1996, the Board of Directors of the Company adopted the
Cytoclonal Pharmaceutics Inc. 1996 Stock Option Plan (the 1996 Plan)
subject to shareholder approval. The 1996 Plan, which was approved by a
majority of shareholders on June 3, 1996, provides for 750,000 shares
of common stock to be reserved for issuance to officers, employees,
consultants and advisors of the Company. Each Director of the Company
was granted 50,000 options to purchase shares at an exercise price of
$4.125 per share. As of November 5, 1996, 515,000 shares are available
for future grant and options to acquire 235,000 remain outstanding
under the 1996 Plan. The Plan provides for the grant of incentive stock
options intended to qualify as such under Section 422 of the Internal
Revenue Code of 1986, as amended, and nonstatutory stock options which
do not so qualify.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cytoclonal Pharmaceutics Inc. (the "Company") was organized and
commenced operations in September 1991. The Company is in the development stage,
and its efforts have been principally devoted to research and development
activities and organizational efforts, including the development of products for
the treatment of cancer and infectious diseases, recruiting its scientific and
management personnel and advisors and raising capital.
The Company's plan of operation for the next 12 months will consist of
research and development and related activities aimed at:
o optimizing Taxol production from the Fungal Taxol Production System
using fermentation technologies, inducers, media and strain
improvements using Taxol specific genes, such as the Taxidiene
Synthase gene.
o establishing a diagnostic test using the LCG gene and related MAb to
test in vitro serum, tissue or respiratory aspirant material for the
presence of cells which may indicate a predisposition to, or early
sign of, lung or other cancers.
o developing a humanized antibody specific for the protein associated
with the LCG gene and, if successful, submission of an IND for
clinical trials.
o further development of proprietary vectors which have been
constructed for the expression of specific proteins that may be
utilizable for vaccines for different diseases using Mycobacteria
recipient strains.
o further development of antisense algorithm under contract at the
University of Texas and identification of optimum antisense reagents
for various human genes of commercial value.
o further animal studies at University of California, Los Angeles for
taxol treatment of polycystic kidney disease.
o development of TNF-PEG technology as an anti-cancer agent.
o development of IL-T and IL-P.
o making modest improvements to the Company's laboratory facilities.
o seeking to establish strategic partnerships for the development,
marketing, sales and manufacturing of the Company's proposed
products.
The actual research and development and related activities of the
Company may vary significantly from current plans depending on numerous
8
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factors, including changes in the cost of such activities from current
estimates, the results of the Company's research and development programs, the
results of clinical studies, the timing of regulatory submissions, technological
advances, determinations as to commercial potential and the status of
competitive products. The focus and direction of the Company's operations will
also be dependent upon the establishment of collaborative arrangements with
other companies, the availability of financing and other factors.
For the period from July 1, 1996 to September 30, 1996, the Company
incurred a net loss $808,000 compared to a net loss of $678,000 for the same
period in 1995. For the period from January 1, 1996 to September 30, 1996, the
Company incurred a net loss of $2,128,000. The Company incurred a net loss of
$2,110,000 for the nine months ended September 30, 1995. The increase from the
previous year was attributable to an increase in research and development
expenses and general and administrative expenses, partially offset by interest
income generated from the proceeds of the Company's initial public offering of
November 1995 and a decrease in interest expense. The Company expects to incur
additional losses in the foreseeable future.
The Company incurred general and administrative expenses of $273,000
and $403,000 for the three months ended September 1995 and September 1996,
respectively and $888,000 and $1,110,000 for the nine months ended September
1995 and September 1996, respectively. The increase was attributable to
increased public relations and technology marketing costs, legal and
professional fees, travel expenses, as well as, to the acquisition of Directors
and Officers liability insurance, partially offset by a decrease in financing
costs.
The Company incurred research and development expenses of $282,000 and
$454,000 for the three months ended September 1995 and September 1996,
respectively and $881,000 and $1,183,000 for the nine months ended September
1995 and September 1996, respectively. The increase was attributable to an
increase in the purchase of laboratory supplies, an increase in research
salaries, license fees paid to the Regents of University of California and WSURF
and an increase in contract research and development expenses paid to UTD.
Included in the research and development expense for the three months ended
September 1996 was a noncash charge of $42,000 related to the valuation of
warrants issued to WSURF.
The Company believes that the net proceeds remaining from its initial
public offering of November 1995 will be sufficient to finance the Company's
plan of operation for approximately 12 months. There can be no assurance that
the Company will generate sufficient revenues to fund its operations after such
period or that any required financings will be available, through bank
borrowings, debt or equity offerings, or otherwise, on acceptable terms or at
all.
Statements in this report that are not descriptions of historical facts
may be forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated.
9
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PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Computation of per share earnings
(b) Reports on Form 8-K - None
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOCLONAL PHARMACEUTICS INC.
Date: November 14, 1996 /s/ Daniel M. Shusterman
-------------------------
Daniel M. Shusterman
Vice President of Operations,
Treasurer and Chief Financial
Officer
11
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Exhibit 11
CYTOCLONAL PHARMACEUTICS INC.
COMPUTATION OF NET (LOSS) PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1996 1995 1996
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net (loss) ($678,000) ($808,000) ($2,110,000) ($2,128,000)
Add cumulative preferred dividend (79,000) (79,000) (238,000) (238,000)
--------- --------- ----------- -----------
NET (LOSS) USED FOR COMPUTATION ($757,000) ($887,000) ($2,348,000) ($2,366,000)
========= ========= =========== ===========
Weighted average number of
common shares outstanding 5,249,000 7,687,361 5,229,667 7,631,373
--------- --------- ----------- -----------
Shares issuable upon exercise of stock
options and warrants, net of shares
assumed to be repurchased (1) 0 0 98,277 0
--------- --------- ----------- -----------
Shares used for computation 5,249,000 7,687,361 5,327,944 7,631,373
========= ========= =========== ===========
Net (loss) per common share ($0.14) ($0.12) ($0.44) ($0.31)
========= ========= =========== ===========
</TABLE>
Notes and Assumptions:
(1) The Company issued common stock and common stock equivalents for
consideration below the initial public offering price of $5.00.
Consequently, in accordance with Staff Accounting Bulletin 83 (during the
periods covered by statements of operation included in the registration
statement) the following methodology was used in determining weighted
average shares outstanding:
Stock issued in a one year period immediately prior to the offering
was treated as outstanding through June 30, 1995 and repurchase of
shares using the treasury stock method at an offering price of $5.00.
<TABLE> <S> <C>
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<CIK> 0000944809
<NAME> CYTOCLONAL PHARMACEUTICAL INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,741
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15
<PP&E> 259
<DEPRECIATION> 165
<TOTAL-ASSETS> 4,757
<CURRENT-LIABILITIES> 517
<BONDS> 0
0
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<TOTAL-LIABILITY-AND-EQUITY> 4,757
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<OTHER-EXPENSES> 2,293
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</TABLE>
