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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 JUNE 30, 1997
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[ ] 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
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(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: 8,264,291 SHARES OF COMMON
STOCK, $.01 PAR VALUE, OUTSTANDING AS OF AUGUST 8, 1997.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
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CYTOCLONAL PHARMACEUTICS INC.
TABLE OF CONTENTS
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Page(s)
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<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. -- Financial Statements:
Condensed Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996 3
Condensed Statements of Operations for the Three
Months Ended June 30, 1996 and 1997 (unaudited)
and for the Six Months Ended June 30, 1996 and
and 1997 (unaudited) and the Period From
September 11, 1991 (Inception) Through
June 30, 1997 4
Condensed Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1997 (unaudited)
and the Period From September 11, 1991
(Inception) Through June 30, 1997 5
Notes to Financial Statements 6
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Security Holders 9
Item 6. -- Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 11 Computation of per share earnings 11
Exhibit 27 Financial Data Schedule 12
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYTOCLONAL PHARMACEUTICS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
DECEMBER 31, JUNE 30,
1996 1997
ASSETS (UNAUDITED)
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<S> <C> <C>
Current assets:
Cash $ 2,858,000 $ 1,857,000
Prepaid expenses and other current assets 35,000 41,000
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Total current assets 2,893,000 1,898,000
Equipment, net 104,000 116,000
Patent rights, less accumulated amortization of
$386,000 and $424,000 864,000 826,000
Investment in joint venture - at equity 16,000 4,000
Other assets 4,000 4,000
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T O T A L $ 3,881,000 $ 2,848,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 319,000 291,000
Current portion of royalties payable 31,000 78,000
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Total current liabilities 350,000 369,000
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Royalties payable less current portion 1,219,000 1,172,000
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Total liabilities 1,569,000 1,541,000
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Stockholders' equity:
Preferred stock - $.01 par value, 10,000,000 shares
authorized; 1,228,629 and 1,165,592 shares of Series A
convertible preferred issued and outstanding at
December 31, 1996 and June 30, 1997, respectively
(liquidation value $3,072,000 and $2,914,000 at
December 31, 1996 and June 30, 1997, respectively) 12,000 12,000
Common Stock - $.01 par value, 30,000,000 shares
authorized: 7,730,546 and 8,216,371 shares issued
and outstanding at December 31, 1996 and
June 30, 1997, respectively 78,000 82,000
Additional paid-in capital 14,074,000 14,582,000
Deficit accumulated during the development stage (11,852,000) (13,369,000)
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Total Stockholders' Equity 2,312,000 1,307,000
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T O T A L $ 3,881,000 $ 2,848,000
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3
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CYTOCLONAL PHARMACEUTICS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
SEPTEMBER 11,
1991
(INCEPTION)
THREE MONTHS ENDED SIX MONTHS ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30,
-------------------- ------------------------- -----------
1996 1997 1996 1997 1997
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<C> <C> <C> <C> <C> <C>
Operating Expenses:
Research and development $390,000 $366,000 $ 729,000 $ 688,000 $ 6,995,000
General and administrative 327,000 440,000 707,000 887,000 6,213,000
--------- --------- ----------- ---------- -----------
717,000 806,000 1,436,000 1,575,000 13,208,000
--------- --------- ----------- ---------- -----------
Other (Income) expenses:
Interest (income) (54,000) (28,000) (116,000) (60,000) (479,000)
Interest expense 1,000 2,000 561,000
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(54,000) (27,000) (116,000) (58,000) 82,000
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NET (LOSS) $(663,000) $(779,000) $(1,320,000) $(1,517,000) $(13,290,000)
Net loss per common share $ (0.10) $ (0.10) $ (0.19) $ (0.21)
Weighted average number of
shares outstanding 7,637,000 8,206,000 7,603,000 8,073,000
</TABLE>
4
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CYTOCLONAL PHARMACEUTICS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
SEPTEMBER 11,
1991
SIX MONTHS ENDED (INCEPTION)
JUNE 30, THROUGH
--------------------------- JUNE 30,
1996 1997 1997
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<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ($1,320,000) ($1,517,000) ($13,290,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 57,000 57,000 626,000
Amortization of debt discount - - 269,000
Amortization of debt costs - - 554,000
Value assigned to warrants and options - 12,000 200,000
Equity in loss of joint venture 12,000 12,000 228,000
Changes in operating assets and
liabilities:
(Increase) decrease in other assets (9,000) (6,000) (49,000)
Increase (decrease) in accounts
payable and accrued expenses 155,000 (18,000) 291,000
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Net cash (used in)
operating activities (1,105,000) (1,460,000) (11,171,000)
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Cash flows from investing activities:
Purchase of equipment (47,000) (41,000) (237,000)
Investment in joint venture - - (233,000)
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Net cash (used in) investing
activities (47,000) (41,000) (470,000)
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Cash flows from financing activities:
Net proceeds from sales of preferred and
common stock - - 13,750,000
Proceeds from exercise of options - 500,000 500,000
Proceeds from bridge loans, net of expenses - - 2,684,000
Repayment of bridge loans - - (3,238,000)
Principal payments of equipment notes - - (76,000)
Dividends paid - - (122,000)
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Net cash provided by
financing activities - 500,000 13,498,000
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NET (DECREASE) IN CASH (1,152,000) (1,001,000) 1,875,000
Cash at beginning of period 5,442,000 2,858,000 0
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CASH AT END OF PERIOD $4,290,000 $1,857,000 $ 1,875,000
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</TABLE>
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CYTOCLONAL PHARMACEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of Cytoclonal Pharmaceutics Inc., a
Delaware corporation (the "Company"), included herein have been prepared in
accordance with the rules and regulations promulgated by the Securities and
Exchange Commission 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, 1996. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) 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
stockholder approval. The 1996 Plan, which was approved by a majority of
stockholders on June 3, 1996, authorizes 750,000 shares of common stock to
be reserved for issuance to the Company's officers, employees, consultants
and advisors. As of August 4, 1997, options to acquire 255,000 shares of
common stock are available for future grant and options to acquire 495,000
shares of common stock remain outstanding pursuant to the 1996 Plan. The
1996 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.
(3) PLACEMENT AGENT PURCHASE OPTION EXERCISE
On February 21, 1997, the Company received aggregate proceeds of $500,000
from the exercise of outstanding placement agent purchase options and, in
connection therewith, issued 50,000 shares of its preferred stock and
250,000 shares of its common stock.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED IN THIS REPORT. THIS DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED IN THIS
REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND SIMILAR
EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR
IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS. HISTORICAL OPERATING RESULTS ARE
NOT NECESSARILY INDICATIVE OF THE TRENDS IN OPERATING RESULTS FOR ANY FURTHER
PERIOD.
Cytoclonal Pharmaceutics Inc., a Delaware corporation (the "Company"), was
duly 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 is aimed at research and development and
related activities comprising:
- further developing the Paclitaxel production from the Fungal Paclitaxel
Production System using optimized fermentation technologies and strain
improvements utilizing selection and Paclitaxel-specific genes.
- development of Paclitaxel treatment of polycystic kidney disease, a
potential new Paclitaxel indication.
- further development of a diagnostic test using the patented 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.
- developing a humanized antibody specific for the protein associated with
the LCG gene and, if successful, submission of an IND for clinical trials.
- further testing the TNF-PEG technology as an anti-cancer agent in animal
studies and possible submission of IND.
- testing of proprietary vectors which have been constructed for the
expression of specific proteins that may be utilizable for vaccines for
different diseases.
- further development of anti-sense technology currently being conducted at
the University of Texas at Dallas.
- making modest improvements to the Company's laboratory facilities.
7
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- hiring additional research technicians and a financial vice president.
- 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 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 April 1, 1997 to June 30, 1997, the Company incurred a
net loss of $779,000 compared to a net loss of $663,000 for the same period in
1996. For the period from January 1, 1997 to June 30, 1997, the Company
incurred a net loss of $1,517,000 compared to a net loss of $1,320,000 for the
same period in 1996. The increase from the previous year was attributable to an
increase in operating expenses and a decrease in interest income. The Company
expects to incur additional losses in the foreseeable future.
The Company incurred general and administrative expenses of $707,000 and
$887,000 for the six months ended June 1996 and June 1997, respectively. The
increase from the previous year was attributable to increased technology
marketing and public relations costs, consulting fees and legal and professional
fees, partially offset by a decrease in insurance expenses and travel and
lodging costs.
The Company incurred research and development expenses of $729,000 and
$688,000 for the six months ended June 1996 and June 1997, respectively. The
decrease was attributable to the completion of the Company's funding obligation
to Research and Development, Inc. under the collaboration agreement, partially
offset by an increase in research salaries, royalties and expenses associated
with the Washington State University Research Foundation agreement.
The Company believes that the net proceeds from its initial public offering
of November 1995 and the exercise of the placement agent purchase options in
February 1997 will be sufficient to finance the Company's plan of operation
through the end of 1997. 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.
8
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PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 28, 1997, the stockholders of the Company held their annual meeting
in Dallas, Texas. The holders of 5,242,161 shares of Common Stock and 376,024
shares of Preferred Stock were present or represented by proxy and, accordingly,
a quorum was present and maters were voted on as follows:
The following persons were re-elected directors of the Company:
Common Stock Preferred Stock
For Withheld For Withheld
--------------------- -----------------
Arthur P. Bollon, Ph.D. 5,190,861 51,300 372,181 3,843
Ira J. Gelb, M.D. 5,190,861 51,300 372,181 3,843
Irwin C. Gerson 5,190,861 51,300 372,181 3,843
Walter M. Lovenberg, Ph.D. 5,190,861 51,300 372,181 3,843
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 Computation of net (loss) per share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K - None
9
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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: August 14, 1997 /s/ Daniel M. Shusterman
-----------------------------------
Daniel M. Shusterman
Vice President of Operations,
Treasurer and Chief Financial
Officer
10
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EXHIBIT 11
CYTOCLONAL PHARMACEUTICS INC.
COMPUTATION OF NET (LOSS) PER COMMON SHARE
(unaudited)
<TABLE>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1997 1996 1997
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<S> <C> <C> <C> <C>
Net (loss) $ (663,000) $ (779,000) $(1,320,000) $(1,517,000)
Add cumulative preferred dividend (80,000) (73,000) (160,000) (146,000)
---------- ---------- ----------- -----------
NET (LOSS) USED FOR COMPUTATION
$ (743,000) $ (852,000) $(1,480,000) $(1,663,000)
Weighted average number of
common shares outstanding 7,637,000 8,206,000 7,603,000 8,073,000
---------- ---------- ----------- -----------
Net (loss) per common share $ (0.10) $ (0.10) $ (0.19) $ (0.21)
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,857
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,898
<PP&E> 315
<DEPRECIATION> 199
<TOTAL-ASSETS> 2,848
<CURRENT-LIABILITIES> 369
<BONDS> 0
0
12
<COMMON> 82
<OTHER-SE> 1,213
<TOTAL-LIABILITY-AND-EQUITY> 2,848
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